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New Approval Required for Government Contracts and Arbitration Agreements in Egypt

Sun, 2021-02-21 01:02

Egypt has been trying to control the number of investor-state arbitration disputes which has been steeply increasing since 2011 and the Arab Spring movement (see past discussion on the Blog here). To that end, Egypt created alternative out-of-court forums for amicable settlement of existing arbitration cases and worked toward curbing the eruption of new cases as much as possible. This post reviews some of those government efforts and, in particular, focuses on a new December 2020 Decree specifying the scope of governmental review and approval of all state contracts and arbitration agreements.

 

The Landscape of Relevant Decrees in Egypt

The Investment Law No. 72 of 2017 created special committees for the settlement of conflicts and disputes relating to investments and investment contracts. One of these committees is the Ministerial Committee for Resolving Complaints and Disputes that may arise between an Investor and the Government under Law 72/2017. The familiar short name of this committee is the Dispute Resolution Committee.

Another such committee is competent to settle disputes between investors and the government arising out of investment contracts. This committee is known as the Committee for the Settlement of Investment Contacts Disputes. In carrying out its job, the committee can reschedule financial dues, rectify inaccurate formalities followed to enter into the contract, or extend limitation periods specified in the contracts.

To ensure efficiency, Law No. 72/2017 provides that the decisions of these committees will be final and enforceable against the government/ state once approved by the Cabinet of Ministers. Investors, conversely, retain the right to resort to state courts or arbitral tribunals to initiate the claim anew.

The establishment of these committees resulted in the successful conclusion of a substantial number of investment arbitration cases. According to a previous Blog post, Egypt concluded 11 investor-state settlements between 2014 and 2020.

Furthermore, the Prime Minister issued Decree No. 1062 of 2019 to establish a ministerial committee to study existing investor-state arbitration cases and advise the government on how to best defend or settle such disputes. The committee’s name was the Higher Commission for Studying and Opining on International Arbitration Cases (“Commission”).

Most recently, in December 2020, the Prime Minister issued Decree No. 2592 of 2020 (“Decree”) to rename the Commission to the Higher Commission for Arbitration and International Disputes; and more importantly, to expand its role from just studying and expressing an opinion on arbitration cases to carrying out a review of all state contracts and arbitration agreements before execution. According to the Decree, the Commission is currently mandated to:

  • review contracts concluded between a foreign investor and any governmental entity or a company wholly or partially owned by the state; and
  • draft the arbitration clause in such contracts as well as other ‘governing clauses’ such as those related to force majeure and the change of law.

The Decree prohibits all governmental entities and companies wholly or partially owned by the state from taking any of the following actions without referring the matter to the Commission for prior review:

  • concluding or amending any contract with a foreign investor;
  • agreeing to arbitrate; or
  • taking any measure or action in relation to any arbitration dispute.

 

Prior Review of Government Contracts with a Foreign Investor

The Decree stipulates that the Commission will review all contracts concluded between a foreign investor and any governmental entity or state company and provide a ‘no-objection’ prior to execution.

The legality of such prior review requirement might be questionable under the principle of fair and equitable treatment of foreign investors given that contracts with national investors are not subject to such prior approval by the Commission.

The Decree comes in broad terms and general language to indicate that it will apply on all types of contracts regardless of their value, risk, subject matter, or the pertaining business sector. It will also apply to all companies wholly or partially owned by the state, no matter how minor the government shareholding percentage is.

The Decree does not provide a definition of what constitutes a ‘foreign investor’ nor how the corporate nationality will be defined. A company’s nationality can be determined according to many criteria (e.g., the place of incorporation, ownership of shares, nationality of management, or repatriation of profits). According to Egyptian law, a company that is incorporated in Egypt will be categorized as having Egyptian nationality regardless of the ownership of its shares. Therefore, choosing an appropriate criterion of corporate nationality will be a challenging task, especially if it might lead to jeopardizing the important international investment principle that foreign investors should receive nondiscriminatory treatment.

The Committee is headed by the Prime Minister and includes in its membership the Minister of the Central Bank of Egypt, the Minister of Justice, the Minister of Petroleum, the Minister of International Cooperation, the Minister of Finance, the Minister of Public Business Sector, the Minister of Trade and Industry, the Head of the State Lawsuit Authority, representatives of the Ministry of Interior and the General Intelligence Authority. As such, it is composed only of high level political and judicial figures rather than technical legal experts. It is accordingly questionable whether the members of the Commission will have the time or the technical expertise required to review and opine on each and every contract to be concluded with the government.

The Commission has a technical secretariat which will be headed by the Assistant of the Minister of Justice and will include a number of legal experts from the Minister of Justice as well as independent experts. The technical secretariat will carry out the legal works, meet on a monthly basis and will report to the Commission.

A question arises here as to the boundaries between the role of the Commission and that of the Advisory and Legislative Department within the Egyptian State Council. This department, according to the State Council law No. 47 for 1972, advises governmental entities on public law matters such as tenders and administrative contracts, and its consultation is mandatory with respect to government contracts with a value above EGP 5,000. In addition to the advisory department of the State Council, each governmental entity has an in-house member of the State Council who has an advisory role in relation to administrative law matters within the entity.

 

Additional Approval for Agreements to Arbitrate

The Egyptian Arbitration Law No. 27 for 1994 (the ‘Arbitration Law’) generally allows governmental entities and state companies to agree to arbitration of future disputes; only in the case of administrative contracts, the approval of the competent minister is required.

Nevertheless, by virtue of the Decree, all governmental entities and state companies are now prevented from signing any arbitration agreement without referring the matter first to the Commission to get its ‘no objection’ clearance. The Decree therefore comes with an additional layer of approval beside the one required under the Arbitration Law. Such additional approval however is broader in its scope as it applies to all government contracts not only the administrative ones.

 

Settling Existing Arbitration Disputes

Governmental entities and state-owned companies are prevented by virtue of the Decree from taking any measure or action in relation to any arbitration dispute without seeking the opinion of the Commission first. The Commission is charged in this respect with the following:

  • approve the legal counsels, international experts, and the arbitrators who will be involved in arbitration cases;
  • provide advice and opinion regarding the defence strategy, the defence adequacy and the sufficiency of evidence;
  • assess the expected award and its impact;
  • offer all needed legal support as may be requested by legal counsels;
  • approve the costs and legal fees pertaining to arbitration cases; and
  • suggest amicable settlement and lead negotiations with counterparties.

The tasks entrusted to the Commission in this respect are similar to those assigned to the abovementioned committees established under the Investment Law No. 72 for 2017 for the settlement of investment disputes. Such committees however are empowered to conclude settlement agreements with private counterparties and their decisions are binding on the relevant governmental authorities and have the force of a writ of execution (i.e., enforceable without the need to take any further legal action) once approved by the Cabinet of Ministers.

 

Conclusion

Private counterparties who intend to enter into an agreement for arbitration or settlement negotiations with an Egyptian governmental entity or a state company must ensure that the matter is first referred to the Commission in order to mitigate related enforcement risks.

A foreign investor should expect that their contract with the government will be reviewed by the Commission which is competent to draft the arbitration clause and other ‘governing clauses’ such as those related to force majeure and the change of law.

While developing standard contractual clauses for governmental contracts might be suitable for lower value, low risk government contracts, it is unsuitable for specific industries which have their standard documents (e.g., construction forms) or for complex and high-risk projects which require bespoke contractual arrangement (e.g., large infrastructure and energy projects or PPPs).

The government of Egypt (including governmental entities and companies) plays an important role in the procurement of major projects in all business sectors especially the infrastructure, energy, and the construction sectors. Foreign investors therefore should be aware of the new involvement of the Authority which is expected to delay the negotiation and execution process of such contracts, as well as the related arbitration agreements.

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Interviews with Our Editors: Mapping India’s Institutional Arbitration Journey with Mumbai Centre for International Arbitration (MCIA)

Thu, 2021-02-18 20:13

In this installment of Kluwer Arbitration Blog’s “Interview with our Editors”, we highlight India’s position in the field, by speaking with Madhukeshwar Desai and Neeti Sachdeva of Mumbai Centre for International Arbitration (MCIA). Madhukeshwar, its CEO, and Neeti, its Registrar & Secretary-General, jointly present MCIA’s journey since its establishment in 2016. They also discuss how the Indian arbitration landscape continues to evolve into a mature arbitration hub.

Madhukeshwar and Neeti, thank you for joining us on the Kluwer Arbitration Blog. We are glad to have you here to share your unique perspectives with the international arbitration community.  

 

  1. Could you briefly introduce our readers to MCIA and your roles there?

Madhukeshwar Desai (“MD”): Most successful financial centres across the world boast of an international arbitration institution that is independent, credible, and that enjoys the support of the domestic market. Until the MCIA was set up in 2016, Mumbai, an important Indian and global financial centre, lacked a world-class arbitral institution.

Furthermore, the vast majority of arbitrations conducted in India were not institutional but ad hoc. MCIA, thus, was set up with the aim to bring international best practices in institutional arbitration to India, while recognising the nuances of the Indian domestic market. To that end, we created the MCIA Rules 2016 (“MCIA Rules”) which reflect international best practices and are also attuned to the Indian market. We believe they are the only institutional rules that do so. The MCIA Rules are implemented in a consistent, fair, and transparent manner via the arbitrations that we administer.

MCIA is also resolute in its mission to catalyse a vibrant ecosystem for arbitration in India that benefits all stakeholders- from the arbitrators to the lawyers, law firms, central and state governments, businesses, and other clients.

For example, we launched the YoungMCIA, to bring young talented lawyers into the arbitration world; hosted many training programs on our own and in collaboration with the best and the brightest from India and elsewhere; and organised events across India and other jurisdictions to elevate and expand the conversation around arbitration in India.

As the CEO, I concern myself with all matters related to the running of the institution except for those relating to the MCIA Rules and its implementation. As the Registrar and Secretary General, Neeti is in charge of the Secretariat where she is responsible for the due implementation of the MCIA Rules and for marketing the institution more broadly.

 

  1. In 2021, MCIA will complete its first five years. According to MCIA’s “4th Edition Report” until its third-year since establishment (2018-2019), it had administered 8 cases and hosted over 650 arbitration sessions. You have recently released the Annual Report 2020. Could you provide some highlights from the report for our readers?  

MD:  MCIA has seen more than a 150% growth in the total number of cases being administered by us. We have received 12 new matters in the calendar year 2020 of which 9 arose from contracts containing an MCIA arbitration clause. Significantly, the parties are increasingly choosing to incorporate clauses pointing to MCIA into their contracts.

Equally significant is the fact that three recent arbitrations were referred to MCIA by Indian courts: the Supreme Court of India referred two ad hoc arbitrations to be administered by the MCIA under the MCIA Rules with the parties consent, and the Bombay High Court referred yet another ad hoc arbitration to be conducted in accordance with the MCIA Rules.

These are important precedents that will go a long way in promoting institutional arbitration in India.

Importantly, also heartening is the increasing geographical diversity in the venue and seat of disputes we are administering. This year, we had parties from across India such as Agra, Amritsar, Bengaluru, Gujarat, Hyderabad, Indore, Jharkhand, Kolkata, Noida, and Telangana. Additionally, the MCIA is administering two international arbitrations with at least one party from Mauritius in both cases.

In 2020 alone, the MCIA received disputes worth over USD 180 million. We think that this is just the start of what we hope to be continued exponential growth going forward.

 

  1. What are the top three advantages of having a case administered under MCIA Rules?

Neeti Sachdeva (“NS”): Institutional arbitration over ad hoc arbitration: MCIA has played a transformative role in promoting the culture of institutional arbitration in India. The first and foremost advantage of having a case administered under the MCIA Rules is having the arbitration conducted under specialized rules agreed to by the parties which reflect international best practices, including, but not limited to, oversight and scrutiny by the institution; provisions for expedited arbitration and emergency arbitration; all of which would be missing in a regular ad hoc arbitration.

The second advantage would be the cap on maximum administrative and arbitrator fees incurred by the parties during the entire arbitration. Under the MCIA Schedule of Fees (“Schedule”), the total fees are calculated on an ad valorem basis and the Schedule reflects the minimum as well as the maximum fees that the parties will have to pay for the resolution of a dispute under the MCIA Rules. In the Indian context, this gives parties a clear understanding of what the arbitration will cost if they were to invoke the arbitration agreement.

The third advantage, that ties in with the first one, is the process for appointment of arbitrators for two reasons: (i) If one of the parties in an ad hoc arbitration is uncooperative, one has to approach the court for the appointment which is both time-consuming and expensive. In an MCIA administered arbitration, under the MCIA Rules, the MCIA Council has the power to appoint, hence is efficient, fast, and cost-effective; (ii) The MCIA Council comprises some of the world’s leading arbitration practitioners, who are equipped to identify the right arbitrators, with the necessary specialization, for each dispute.

 

  1. Indians are amongst the top nationalities to arbitrate at international arbitral institutions and that is reflected in recent case-load reports of SIAC (where India stood at the first place) and ICC (where the number of cases with an Indian party tripled from the previous year, thus, taking it from the fifteenth place in 2018 to the second place in 2019). While Singapore and Hong Kong have established themselves as leading arbitration jurisdictions in the region, India continues to play catch-up.  What more could the legislature and the executive do to create the right environment to make India an attractive international arbitration hub?

MD: The foundation is being laid by the executive and legislative branches to strengthen India’s position as a favourable jurisdiction for arbitration. Even if one looks at Singapore or Hong Kong, they did not become recognised centres for international arbitration overnight – it took them more than two decades to arrive at the recognition that you refer to. I believe that India is on a similar journey, but one that will hopefully get us to the destination sooner, given the clear direction from the government, the courts, and the users of arbitration in India. MCIA, on its part, looks forward to playing a significant role in accelerating that journey.

NS: There is a clear and concerted effort from the government, and the legal community to move towards institutional arbitration and make India a favourable seat for arbitration. There is no doubt that the MCIA has benefited greatly from this.

 

  1. What is your take on the Indian judiciary’s performance in promoting a) the arbitration culture in India, and b) enforcement of foreign arbitral awards in India? 

NS: Like the legislature and the executive (as discussed above), the Indian judiciary continues to show its commitment towards promoting arbitration culture in India and in particular, institutional arbitration. We see this in the judgments from the courts. We also see this when the Indian courts repose faith in MCIA’s work and refer cases to us for both, the appointment of arbitrators as well as administration. As mentioned above, to date, the Supreme Court of India has referred three matters to us. Of these, one is an international dispute where MCIA was entrusted with the responsibility of appointing the tribunal. The other two cases have been recently referred to MCIA for administration under its rules. Both these cases involve significant business houses of India.

In addition to this, the Bombay High Court has also referred two cases to be administered under MCIA rules. One of these cases was referred to MCIA in 2020 and involves a multi-million dollar claim.

 

  1. You have recently announced “Call for Arbitrators” to expand MCIA’s list of eligible arbitrators. Could you tell us more about your arbitrator roster?

NS: As noted above, we have recently had an influx of cases and we expect more cases to come our way. In anticipation of that, we put out a ‘Call for Arbitrators’, so that we are adequately prepared for the role that we have to play in terms of appointing tribunal members.

While anyone may choose to apply, we engage in a robust selection process before adding individuals to the list. The criteria we use is broadly based on, but not limited to those listed below, in no particular order of importance:

  • The number of cases the applicant has acted as an arbitrator
  • The number of years at the bar (if an advocate)
  • Area of expertise
  • Accreditation from bodies of repute, such as the CIArb
  • Jurisdiction/location

We will continue to accept applications on a rolling basis from both Indian and international practitioners. We maintain an internal list and do not publish it.  Nor do we make this list available to anyone outside the MCIA.

 

  1. How does YoungMCIA galvanize the energy of students and fresh graduates to promote institutional arbitration in India?

MD: India does not have a dedicated arbitration bar, but it does have a large number of young people that want to establish a practice that is predominantly arbitration-driven. To that end, the YoungMCIA creates a community and a safe space where students and young professionals gather to share thoughts, exchange ideas, and interact with like-minded individuals. In a pre-Covid world, most YoungMCIA events were a combination of training exercises – such as the ‘Lifeline of an Arbitration’ series (now done virtually) and social gathering aimed at facilitating interactions with senior members of the bar, who may otherwise be inaccessible to young practitioners.

We now have over 1300 YoungMCIA members, a strong community that galvanize the Young MCIA, and not the other way around.

 

Thank you for your time and perspectives – we wish MCIA continued success!

This interview is part of Kluwer Arbitration Blog’s “Interviews with Our Editors” series.  Past interviews are available here.  

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A Battle on Two Fronts: Vattenfall v. Federal Republic of Germany

Thu, 2021-02-18 00:15

Swedish state-owned power energy company Vattenfall operated two nuclear power plants located in Brunsbüttel and Krümmel, Germany. Vattenfall owns a 50% interest in the Krümmel plant, and a 66.6% interest in the Brunsbüttel plant. In August 2011, against the backdrop of the nuclear disaster in Fukushima, Japan, the German Parliament amended the Act on the Peaceful Utilization of Atomic Energy and the Protection against its Hazards (the “Atomic Energy Act”) to abandon the use of nuclear energy in the country by 2022 (the amendment is known as the ‘Thirteenth Amendment’).

The Thirteenth Amendment statutorily accelerated fixed end dates for the operation of nuclear power plants without any compensation – and therefore cut short the operational lifetimes of the nuclear power plants that had just been fixed in 2010 by means of the Eleventh Amendment. Consequently, Vattenfall’s licenses to operate both plants were immediately withdrawn and operations in both plants were shut down.

Vattenfall adopted a two-front battle against the German State’s measures: the filing of a constitutional challenge with the German Federal Constitutional Court (the “Court”), and the initiation of an investment arbitration against Germany under the Energy Charter Treaty (“ECT”) (the “ECT Arbitration”).

 

The Constitutional Litigation in Germany

In February 2012, Vattenfall Europe Nuclear Energy GmbH and Kernkraftwerk Krümmel GmbH & Co. oHG (the “Petitioners”) filed a constitutional complaint regarding the Thirteenth Amendment before the Court for violation of their property rights. On December 6, 2016, the Court issued a first judgment (the “2016 Judgment”) finding that the Thirteenth Amendment was incompatible with the German Constitution “insofar as it [did] not include any provision for a settlement for investments that were made in legitimate expectation of the additional electricity output allowances allocated in 2010, but were devalued by the Amendment.”

First, the Court recognized that the State enjoys broad powers in determining which aspects of the common good to prioritize, and how to protect public interests such as life and health (at ¶ 283). In this particular case, the Court found that the State enjoyed particularly broad powers to design its atomic energy law, given the high-risk nature of this activity.

Nonetheless, the Court held that such broad regulatory powers are not absolute, as the State is still obliged to preserve the legitimate expectations of investors (at ¶ 372). The Court found that, in this case, legitimate expectations arose from the Eleventh Amendment because it extended permissions for nuclear power plants and encouraged investors to undertake investments in plants, and it was not foreseeable that the German legislature would shift its energy policy within the same legislative period (at ¶¶ 375-377). By enacting the Thirteenth Amendment just a few months later, the German State unreasonably limited the investors’ property by devaluing the investments that were made following the Eleventh Amendment. The Court found that this amounted to a violation of the investors’ legitimate expectations, and therefore the State should have provided appropriate compensation (at ¶¶ 372-73, 375-80). (A previous discussion of the decision is available here).

In light of the above, the Court ordered that the Thirteenth Amendment could remain in effect until the legislature adopted a new amendment to correct the violations of the German Constitution, which was to occur no later than June 30, 2018 (at ¶¶ 399-406).

To comply with the Court’s mandate, on July 10, 2018, the German legislature enacted the Sixteenth Amendment to the Atomic Energy Act. This amendment was to enter into force one day after the European Commission (“EC”) authorized it, or declared that no state-aid authorization was necessary (see Article 3).  Applied to the Petitioners’ case, the amendment provided that (i) the Petitioners were entitled to compensation, but only if they had previously made a good faith effort to sell residual energy to third companies at a reasonable price; and (ii) if compensation was paid, it was limited to 2/3 of the residual energy for Brunsbüttel and 1/2 of the residual energy for Krümmel. Given that Vattenfall’s partner was in a position to use all of its residual energy internally, it was not entitled to compensation (see § 7f(1)).

The Petitioners filed another constitutional complaint regarding the Sixteenth Amendment, and on September 29, 2020, the Court rendered a second judgment (the “2020 Judgment”).1)According to the Constitutional Court’s official press release the 2020 Judgment was made public on November 12, 2020 and is currently available in German language only. jQuery('#footnote_plugin_tooltip_36145_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_36145_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  The Court found that the Sixteenth Amendment never entered into force because it was contingent upon approval from the EC. However, the EC had neither approved the Sixteenth Amendment, nor issued a binding communication that such an approval was not required (at ¶¶ 53-69)  Therefore, the Court found that the violation of the Petitioners’ rights persisted given that no other remedial provision had been enacted.

In addition, the Court also held that the content of the newly enacted regulation would still infringe upon the Petitioners’ constitutional rights. The Court found that the fact that the amendment tied compensation to an obligation to make efforts to transfer compensable electricity volumes to other companies under adequate conditions was unreasonable (at ¶ 71). In particular, it was unreasonable because, at the time they were to start negotiating the transfer of electricity, the Petitioners would not know whether the transfer conditions would meet the § 7f(1) criteria, and if the criteria weren’t met the Petitioners would risk not receiving compensation at all (at ¶¶ 74-76).

The Petitioners also complained about the proposed reduction of their compensation under the Sixteenth Amendment. Without opining on the amount of compensation provided, the Court held that this aspect of the amendment would also be unconstitutional. In particular, In particular, the amendment lacked sufficient specificity to determine compensation in circumstances where two corporations were shareholders in an affected investment (i.e. Vattenfall and PreussenElektra), but only one corporation was entitled to compensation pursuant to the 2016 Judgment (i.e. Vattenfall) (at ¶¶ 77-81).

Accordingly, it is clear from this latest decision that the German State still remains obligated by the 2016 Judgment to enact new provisions as soon as possible in order to remedy the violations of the Petitioner’s constitutional rights (at ¶ 84).

 

The ECT Arbitration

On May 14, 2012, Vattenfall and its German subsidiaries initiated an international arbitration under the ECT against Germany, claiming EUR 4.7 billion due to losses allegedly suffered from Germany’s decision to accelerate the phase-out of nuclear energy under the Thirteenth Amendment. The International Center for the Settlement of Investment Disputes (“ICSID”) is administering the arbitration (see Vattenfall AB and others v. Federal Republic of Germany (ICSID Case No. ARB/12/12)). Hearings on jurisdiction, merits, and quantum were held in 2016, however, a final decision is still pending.

In a Q&A public statement, Vattenfall explained that it decided to pursue the constitutional litigation and the ECT Arbitration as “it was not an option for Vattenfall to await the multi-year procedure at the German Federal Constitutional Court before appealing to ICSID.” Ironically, Vattenfall obtained a quicker decision from the German judiciary (in December 2016) than the ICSID tribunal which continues hearing the case to date.  However, the path towards remedying the violations to the Petitioners constitutional rights under German law is not finished yet as the German legislative power still needs to comply with the 2016 Judgment through the adoption of new legislative measures.2)According to a statement by the spokesman for the Federal Ministry of Environment, Stephan Haufe, the required changes to the Atomic Energy Act to comply with the Court’s judgement will be implemented in the course of this year. jQuery('#footnote_plugin_tooltip_36145_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_36145_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Impact of the 2020 Judgment on the Ongoing ECT Arbitration

Back in 2016, Nikos Lavranos discussed the impact of the 2016 Judgment in favor of the Petitioners on the ECT Arbitration.  He anticipated that the arbitral tribunal would perform a comprehensive balancing between the regulatory powers of the German State and the protection of the legitimate expectations and property rights of the investor. The 2020 Judgment does not seem to alter that assessment.

While the parties’ written submissions in the ECT Arbitration are not public, from November 21, 2020 to November 27, 2020 the Tribunal held public hearings on certain quantum issues –  with the parties also being invited to make submissions on the impact of the 2020 Judgment on the arbitration proceedings.  On this issue, the Claimants submitted that the 2020 Judgment:

  1. removed any relevance of the Sixteenth Amendment on the arbitration proceedings (since Germany had argued that such amendment rendered the Claimants’ claims moot), and
  2. showed precisely why the Claimants had to bring the ECT Arbitration: ten years after the constitutional challenge was brought, Germany still had failed to compensate Claimants.3)See Vattenfall AB and others v. Federal Republic of Germany (ARB/12/12), Hearing on Tribunal Question 8 (November 21, 2020), Claimants’ Opening Statement. jQuery('#footnote_plugin_tooltip_36145_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_36145_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

On its side, Respondent alleged that Claimants were inflating its damages claim, among others, because:

  1. while in the constitutional litigation Vatenfall is not claiming damages and the Court does not deal with damages – rather the Court held that sales of electricity volumes could not amount to compensation – in the arbitration, the Claimants’ quantum analysis takes into consideration ex ante prices to calculate higher damages; and
  2. while German constitutional law focuses on individual property rights (in this case, the individual power plants and individual assets), the ECT Arbitration focuses on Vatenfall’s investment in an energy company which one of its lines of business was nuclear energy.4)Id., Respondent’s Opening Statement. jQuery('#footnote_plugin_tooltip_36145_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_36145_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

While judicial decisions do not constitute a binding precedent for an international investment arbitration tribunal, they can provide support to arguments such as those advanced by Vattenfall, as well as other investors facing similar energy bans without compensation from a host state. It will be interesting to see how the arbitral tribunal in the ECT Arbitration deals with the Court’s judgments in its final award (in particular, the reasoning in the 2016 Judgment regarding the violation of the investors’ legitimate expectations and property rights).

In turn, this decision will certainly be an important precedent for other cases where investors have resorted to international arbitration against States for similar legislation seeking to accelerate the decommissioning of coal-fired power plants, without compensating foreign investors. For instance, in 2018, Westmoreland Coal Company initiated arbitration against Canada following the Government of Alberta’s 2015 plan to eradicate coal-based energy by 2030.  Likewise, in September 2019 Uniper expressed its intention to file a claim against The Netherlands after the Dutch parliament passed a bill in 2016 which set forth a 55% cut in GHG emissions by 2030. On February 2, 2021, ICSID registered an ECT claim against the country arising out of those measures brought by German energy company RWE AG. Finally, on January 31, 2021, Australian mining company Berkeley also announced it is considering resorting to international arbitration if an amendment to Spain’s climate change bill, that proposes banning the mining of uranium in the country, is passed.

 

The views expressed by the author do not represent the position of Herbert Smith Freehills or its clients.

References[+]

↑1 According to the Constitutional Court’s official press release the 2020 Judgment was made public on November 12, 2020 and is currently available in German language only. ↑2 According to a statement by the spokesman for the Federal Ministry of Environment, Stephan Haufe, the required changes to the Atomic Energy Act to comply with the Court’s judgement will be implemented in the course of this year. ↑3 See Vattenfall AB and others v. Federal Republic of Germany (ARB/12/12), Hearing on Tribunal Question 8 (November 21, 2020), Claimants’ Opening Statement. ↑4 Id., Respondent’s Opening Statement. function footnote_expand_reference_container_36145_30() { jQuery('#footnote_references_container_36145_30').show(); jQuery('#footnote_reference_container_collapse_button_36145_30').text('−'); } function footnote_collapse_reference_container_36145_30() { jQuery('#footnote_references_container_36145_30').hide(); jQuery('#footnote_reference_container_collapse_button_36145_30').text('+'); } function footnote_expand_collapse_reference_container_36145_30() { if (jQuery('#footnote_references_container_36145_30').is(':hidden')) { footnote_expand_reference_container_36145_30(); } else { footnote_collapse_reference_container_36145_30(); } } function footnote_moveToAnchor_36145_30(p_str_TargetID) { footnote_expand_reference_container_36145_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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The Contents of Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, Volume 87, Issue 1 (February 2021)

Wed, 2021-02-17 21:00

As we slowly turn the corner of this brutal year, a mixed set of thoughts and reflections come to mind. For a start, one cannot help but feeling a sense of measured optimism that after a vicious tally of human losses worldwide and unprecedented disruption of every single aspect of our social and professional lives which the pandemic has caused, some light appears to slowly shine at the end of what has been a very long tunnel.

And it is only right that I start this year’s assessment with a general reflection on the state of our world. Indeed, it would be entirely myopic and solipsistic to mainly think of our niche field of international law in these challenging times.

At the same time however, it is international dispute resolution that we -and the readers of this Journal– theorise and practice, and it is only natural for this editorial to also assess the implications of this year’s events on our field. And here the sense of measured optimism is overtaken by a sense of enthusiasm and, perhaps, admiration of the resilient and evolutionary nature of the practice of international arbitration.

Writing the introduction of the edited book on The Evolution and Future of International Arbitration back in the (what now appears to be) far distant 2016, I identified eight future challenges for the field of international arbitration. Without being able to imagine the wide-ranging plights that the global pandemic would bring about four years later, I was then asking the question as to how “technology can change the way international arbitration is conducted?”. Specifically, I was writing the following lines:

Despite its flexible nature, international arbitration has failed to embrace technology so far. The only technological innovations introduced in arbitration in the last twenty years are e-discovery of documents and the use of electronic copies of submissions and exhibits. However, electronic submissions have not changed the way arbitration is actually conducted: instead of (and very often in addition to) hard copies parties submit electronic copies of their submissions, including supporting documents. This is hardly innovative. Information technology has made unprecedented advances that may have far reaching implications for the conduct of international arbitration [….] science and technology can make arbitration proceedings more time and cost efficient.

Fast forward to 2020: faced with the prospect of recurrent postponements of arbitration hearings and extensive disruption of the process of thousands of ongoing arbitrations, arbitration institutions, counsel and arbitrators, have been quick to adapt to the new circumstances and come up with new sets of remote practices and protocols for online hearings. This has been international arbitration at its best: innovative, willing to embrace change, and quick to implement solutions to real life problems by relying on the use of cutting-edge technology.

All of us will look back to 2020 hoping that we not have to re-live such a treacherous turn of events. It is, however, likely that we will consider the year of 2020 as the beginning of a new era of a more effective and technologically friendly practice of international dispute resolution.

* * *

We are happy to report that the latest issue of Arbitration is now available and includes the following:

 

ARTICLES

Carlos Molina Esteban, Bifurcation of ICSID Awards and Reconsideration of Interlocutory Decisions: The Fine Balance of Procedural Economy

Bifurcation is by no means a rarity:ICSID Tribunals have rendered over 115 decisions on bifurcation. Despite this, until now, there has not been a comprehensive regulation of Bifurcation within the ICSID Convention and Rules. Case law has, thus, been fundamental to its development. This article will examine investment arbitration case law in order to answer a set of questions: What is the objective of Bifurcation? Under which circumstances should Tribunals bifurcate? Do these circumstances change depending on the issues to be bifurcated?

We will then take a look at the post-bifurcation scenario, specifically at the issue of reconsideration of decisions. After a review of case law on the matter, we will examine two further questions: when should Tribunals reconsider their decisions? And what is the rationale behind these reasons to reconsider a decision?

As we will further develop, these questions revolve around one key concept: Procedural Economy. Both bifurcation and reconsideration of decisions can ultimately be seen as a balancing exercise of procedural economy, Tribunals having to carefully balance out the circumstances of each case to decide whether the bifurcation of proceedings or the reconsideration of decisions would benefit efficiency.

 

Naimeh Masumy & Niyati Ahuja, Divergence from Conflict-of-Law Analysis: The Need for a Coherent Standard of Review for Economic Sanctions in International Arbitration

The recent reinstatement of economic sanctions by the US against Iran, China and Hong Kong (The Comprehensive Iran Sanction, Accountability and Divestment Act of 2010, Pub. L. 111–195, 124 Stat.1312, enacted 1 July 2010; Comprehensive Iran Sanction, Accountability and Divestment Act (CISADA). International Emergency Economic Powers Act (IEEPA), 50 U S C.1701–1706.) brings into focus how to best resolve disputes related to these sanctions in arbitral proceedings. Arbitral tribunals tend to apply conflict-of-law rules in order to determine the application and the validity of the sanctions. This article contends that the invocation of private international law principles, such as the conflict-of-laws analysis, to adjudicate these cases is conceptually and pragmatically challenging as it forces the arbitral tribunal to determine the applicable law according to complicated rules with a discretionary nature and thereby hinders arbitral tribunals from considering sanctions through the prism of public international law. The principles of Public International Law should be considered by arbitral tribunals when reviewing sanctions with transnational elements. The paper analyses the existing approach adopted by arbitrators and proposes that arbitral tribunals undertake a minimal standard of review based on Public International Law principles.

 

Edwin Teong Ying Keat, Calling a Spade a Spade: Making the Case for Construing Exclusion Agreements in Arbitration as Exclusion Clauses

Exclusion Agreements (‘EAs’) are agreements excluding the right to appeal arbitral awards. However, a lacuna exists in the analysis of EAs. courts when ruling on EAs, lapse into dichotomous outcomes – enshrine party autonomy or respect issued awards. Therefore, this article argues for the law on exclusion clauses to be applied to EAs for five reasons. First, EAs are essentially exclusion clauses as they also demarcate obligations. Second, the proposed solution adds rigour to the analysis of EAs. Third, EAs share very similar policy considerations with exclusion clauses. Fourth, the potential doctrinal objection – doing so violates the doctrine of separability – is rebutted. The tribunal presides over proceedings to issue arbitral awards, while courts decide the validity of EAs. Further, the roots of ‘separability’ is arguably procedural in enshrining choice of dispute settlement. Lastly, subjecting exclusion clauses to stricter scrutiny than EAs sends the wrong signal to parties invoking EAs.

 

Silpi Jain, Aryan Mohindroo & Harshil Manchanda, Mediating the Irish Way: Taking an Alternative Approach to Alternative Dispute Resolution in India

In the past couple of decades, Ireland and India, both common law countries, have made attempts to strengthen the mediation regime in their respective countries, however, Ireland has experienced greater growth, both in terms of law and practice. Through this article, the authors attempt to study the developments in the legal regime on mediation in both countries and propose the adoption of certain features of the Irish model into the Indian legal system for greater regulation of mediation practices. The authors explore the various features of the Irish regime and the suitability of adopting the same into the Indian system. The authors address a wide range of issues relating to building a robust regulatory framework in India, such as the scope of enacting a legislation, providing better enforcement mechanisms and enhancing the quality of mediators.

 

Bas van Zelst, Similar ≠ Equal – a Nuanced Approach to Remote Hearings: A Dutch Perspective

This article proposes a nuanced approach to remote hearings, from the perspective of Dutch law. The Dutch Arbitration Act was revised in 2015. It grants an arbitral tribunal the discretionary power to decide that a hearing be conducted ‘by electronic means’. This article challenges the notion that that power is of a mandatory nature. It submits that the power for arbitrators to opt for a remote hearing is limited by fundamental principles of procedural law, the principle of parity, in particular. The article goes on to list relevant considerations in opting for a remote hearing in Netherlands-seated arbitral proceedings and considers this approach to be feasible in the international setting as well.

 

Benjamin Williams, Qualifying Achmea: Investor-State Arbitration, Jurisdictional Conflict and EU Decision-Making

In 2019, the European Court of Justice shocked the arbitration community with the release of Opinion 1/17. The opinion turned once again to the compatibility of Investor-State Dispute Settlement mechanisms under EU law, finding the provision in Canada’s Comprehensive Economic and Trade Agreement compatible. Yet the ruling appeared at odds with the court’s own case law. Only a year earlier, in Slovak Republic v. Achmea, the court had found the Investor-State Dispute Settlement (ISDS) provision in a Netherlands-Slovakia treaty incompatible.

This article examines the two cases to consider the jurisdictional compatibility of investor-state arbitration bodies under EU law. Through a close reading of the judgements, it traces a common thread in the court’s reasoning – the principle of mutual trust. It argues that mutual trust can be seen both as the Court’s metric for limiting the scope of arbitration practice, as well as the source of the court’s autonomy within the EU legal order. In so doing, the paper seeks to resolve the apparent conflicts between these two contrasting cases, while also commenting on the Court’s approach to decision-making more broadly.

 

Viktoriia Korynevych, Revisiting Kompetenz-kompetenz and Arbitrability in the US Supreme Court: Vicious Circle of Delegation Clauses and Carve-out Provisions in Henry Schein Inc. v. Archer and White Sales Inc

The US courts have long recognized that arbitral tribunal has power to rule on arbitrability as long as parties ‘clearly and unmistakably’ delegated such power in the arbitration clause. The question as to what exactly constitutes ‘clear and unmistakable’ delegation still remains unanswered. In the 2020–2021 term, the US Supreme Court will have an opportunity to shed some light on the concept of ‘clear and unmistakable’ delegation. In 2019, in Henry Schein Inc. v. Archer and White Sales Inc., the Fifth Circuit Court of Appeals held that the presence of carve-out provisions in the arbitration clause negates an otherwise ‘clear and unmistakable’ delegation of arbitrability to arbitral tribunal. In other words, if arbitration clause excludes, for example, intellectual property disputes or injunctions, then arbitrability question automatically goes to courts. On 8 December 2020, the US Supreme Courtheard the argument in the case and will likely decide it in 2021.

 

BOOK REVIEWS

Margie-Lys Jaime, Mediation in International Commercial Arbitration and Investment Disputes, by Catharine Titi & Katia Fach Gómez (eds) (Oxford University Press, 2019)

Erik Van Wellen, Construction Contracts: Law and Management, by Will Hughes, Ronan Champion & John Murdoch (eds) (Routledge, 5th Edition, 2015)

Gordon Blanke, Commercial Arbitration in Zimbabwe, by D. Kanokanga (Juta, 2020)

 

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The Public Policy Exception under Article V(2)(b) of the New York Convention in the Time of Covid-19

Wed, 2021-02-17 01:19

Exceptional times call for exceptional measures. We have all been experiencing a global pandemic for almost a year now. In an era where the legal exception tends to become the mainstream rule, one is left to wonder how far can this reversal of odds go. Is the global public health crisis susceptible to calling into question standard principles of international arbitration such as the recognition and enforcement of foreign arbitral awards under the New York Convention (“NYC”)? Faced with this question, this post examines whether the global health crisis may give rise to requests for courts to refusal to recognise and enforce arbitral awards under Article V(2)(b) of the NYC and assesses the circumstances and conditions under which such claims may be upheld in court. The post reflects a more detailed analysis of these issues in light of the current global health crisis, contained in a recent publication assessing the public policy exception under Article V(2)(b) of the NYC (see Z. PRODROMOU, The public order exception in international trade, investment, human rights and investment disputes, Kluwer, 2020).

 

Article V(2)(b) of the NYC: How Does the Global Health Crisis Fit In?

Article V(2)(b) of the NYC provides that:

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

(…)

(b) The recognition or enforcement of the award would be contrary to the public policy of that country”.

The benchmark question is whether the current global health crisis theoretically fits into the public policy exception. The text of the NYC itself refrains from defining the term public policy, and leaves it up to the national courts enforcing foreign awards to interpret the term’s meaning. Consequently, in the absence of a clear prohibition or definition otherwise, courts could read the global health crisis into Article V(2)(b) on the face of the facts and situations mapped out immediately below.

 

Mapping out Concrete Situations where the Global Health Crisis may Give Rise to Claims under Article V(2)(b) of the NYC

The exception enshrined in Article V(2)(b) of the NYC concerns infringements of procedural and substantive public policy rules. The current global health crisis may give rise to claims related to both of these aspects of public policy.

 

1. Claims concerning the infringement of procedural public policy against the backdrop of the global health crisis

In the context of Article V(2)(b) of the NYC, procedural public policy concerns can include flaws in the adjudication of the case at issue by the competent arbitral tribunal. By way of example, due process infringements constitute issues of procedural public policy.

The local lockdowns combined with the series of bans on international flights and travel have forced arbitral tribunals to adapt to a brand new reality of remote, e-operation. Virtual hearings have become the new norm, all while arbitral tribunals seek to guarantee the unhindered continuation of proceedings in the interests of justice. Despite noble intentions, though, this instant digitalization of arbitration could raise serious questions from a due process standpoint. This is particularly so in the event one of the parties objects to a virtual hearing and prefers to postpone the proceedings, including to allow for a meeting in person. Arbitral institutions have shown good reflex and have issued a line of additional notes and guidance discussing the different options available to arbitrators seeking to strike a fair balance between procedural efficiency and due process. Notwithstanding these additional soft law tools, key questions of principle remain unanswered: Do virtual hearings and other electronic means of administration of arbitral proceedings adequately fulfil the parties’ right to be heard in a meaningful manner and in line with the respective requirements of Article V(2)(b)? This includes the right to submit evidence, to comment upon evidence furnished by the other party, and the ability to cross-examine witnesses virtually. Moreover, the technology used to conduct virtual hearings could also raise questions on the confidentiality of the proceedings and the overall privacy and data protection of the parties involved. Based on the above, it would not come as a surprise if parties who are currently forced to take part in virtual arbitration proceedings subsequently rely on the intricacies raised above to seek to resist the recognition and enforcement of arbitral awards rendered after electronic hearings, based on the public policy exception under Article V(2)(b). Of course, the success of any such claims greatly depends on the facts surrounding the respective assertions. The more egregious the circumstances, the higher the prospects of success.

 

2. Claims concerning the infringement of substantive public policy against the backdrop of the global health crisis

The relevant case-law indicates that substantive public policy hinges on the protection of the following key pillars: (a) fundamental principles pertaining to justice or morality; (b) rules serving the State’s essential political, social or economic interests (“lois de police”); (c) duty of the state to respect obligations under international law; (d) the forum state’s national interests; and (e) constitutional principles. From this universe, the protection of the forum state’s national interests as well as the protection of the forum state’s constitutional principles would be the most likely be employed by parties seeking to resist the recognition and enforcement of arbitral awards in the backdrop of the global health crisis. In United World v. Krasny Yakor, the Federal Arbitrazh Court of the Volgo-Vyatsky Region in Russia, held on appeal that the award in question was counter to the forum’s substantive public policy due to the fact that it could lead to the respondent’s bankruptcy, thereby affecting the forum’s regional economy as a whole. Likewise, the Caribbean Court of Justice set aside the award under review in BCB Holdings, because it was determined to be contrary to the forum’s core constitutional values of separation of powers and parliamentary sovereignty.

These lines of jurisprudence, which are unrelated to the health crisis, could be employed by analogy in at least two ways by parties seeking to resist the recognition and enforcement of arbitral awards due to Covid-19-related events. First, the resisting party could rely on the financial implications of the lockdown, or on other restrictive measures, to argue that these would be further magnified to the detriment of the economy should the foreign arbitral award in question be recognized and enforced. This is particularly so where there is evidence showing that the resisting party would face bankruptcy as a result of the enforcement proceedings in question or that such proceedings could have indirect, yet severe, financial implications for other market players associated with the resisting party. Second, and depending on the prevailing circumstances at the time, the resisting party could also rely on any applicable restrictive measures at the time, including special measures for the suspension of certain judicial and commercial or banking activities, and therefore argue that recognition and enforcement of a foreign arbitral award would contravene these restrictions and therefore run against the national interest and constitutional principle of protecting public health, and by extension, affect the national population.

 

Reading the Global Health Crisis into Article V(2)(b) of the NYC is also Supported by the Provision’s Theoretical Underpinnings

Reading the global health crisis into Article V(2)(b) could be considered justified given that the content of the public policy exception is not meant to remain stable, but rather evolve over time. The non-static nature of the public policy exception is dictated by the need to capture fluctuations in prevailing societal circumstances. According to this evolutionary interpretation, the term ‘public policy’ is meant to encompass the most recent societal changes such as the current global health crisis. However, this conclusion does not necessarily compromise the need to construe the public policy exception narrowly or otherwise contravene the NYC’s general pro-enforcement spirit. Quite the contrary, it shows that public policy constitutes a notion fluid enough to adjust to changing circumstances, including the outbreak of Covid-19. The application of Article V(2)(b) by courts in situations arising out of the current global health crisis, however, must be in line with the provision’s exceptional nature, and must pay respect to the NYC’s overall aims.

 

Final thoughts

International jurisprudence on the enforcement and recognition of arbitral awards shows that the public policy exception has only been upheld by courts on limited occasions. Based on this, the mere fact that the global health crisis may give raise to additional claims under Article V(2)(b) does not necessarily mean that these will inevitably tip the NYC’s pro-enforcement balance. The provision has been traditionally applied extremely narrowly and has been upheld only on the face of exceptional procedural irregularities or in light of extremely dire financial conditions. All in all, the exception is expected to be invoked more often given the current unprecedented circumstances, but it does not run the risk of becoming the rule. The odds should not be reversed on this front.

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The Rising Arbitrator’s Challenge: Navigating the Premise and Perils of Your First Appointment(s)

Wed, 2021-02-17 00:49

On 27 January 2021, the Rising Arbitrators Initiative (RAI) hosted the second webinar of its series “The Rising Arbitrator’s Challenge: Navigating the Premise and Perils of Your First Appointment(s)”.

The aim of the series of events is to support practitioners who are seeking or tackling their first appointments and each webinar is focused on a different jurisdiction. The 27 January 2021 event focused on Europe and was moderated by Victoria Pernt (Schoenherr Attorneys at Law). After the opening remarks by Ana Gerdau de Borja Mercereau (Derains & Gharavi), co-founder and co-chair of RAI’s Executive Committee, introducing RAI’s initiative, the panel featuring Alice Fremuth-Wolf (VIAC); Milena Djordjevic (University of Belgrade), and Simon Gabriel (Gabriel Arbitration), commenced the discussion.

 

How to get your first appointment and what criteria do institutions take into account in the selection process?

Alice Fremuth-Wolf gave her insight and practical advice on the issues related to first appointments and the criteria for selection by VIAC. She highlighted that it is one of VIAC’s duties to look for new talents, to increase the arbitrators’ circle and look for more diversity in the arbitration market. It was clear from the discussion that one of the goals of VIAC is to promote young talents and give them the possibility to get their first appointments. Ms. Fremuth-Wolf’s advice on how to get the first appointment was for young practitioners to be confident and make themselves visible by attending conferences or seeking speaking opportunities. This, in her opinion, will make the decision-makers become aware of the new talents. Another important consideration mentioned was for aspiring arbitrators to keep publishing on specific topics, not only procedural, but also particular areas of substantive law. She mentioned that it is good to consider focusing on niche areas such as for example environmental law. In today’s pandemic reality it is important to make use of different online platforms such as LinkedIn and meet online with other peers and engage in discussions.

First appointments are usually realistic after gaining some experience as a party representative or as a tribunal secretary. Securing an internship with an arbitral institution may also be a valuable experience. Ms. Fremuth-Wolf mentioned that it is worth considering having one’s name included on so-called lists of practitioners, such as the one VIAC has, especially designed to make profiles visible.

 

Is it appropriate for arbitrators to seek support from arbitral institutions?

The discussion also touched upon the importance of asking for support from arbitral institutions. This is because there are many issues that can be raised even in small cases, in particular because these types of cases usually involve numerous procedural issues, less experienced counsel, or non-responsive parties. Ms. Fremuth-Wolf noticed that not only young practitioners seek such advice, but also experienced arbitrators ask many questions, and, as such, there should be no shame in asking for support. Many issues may be related to procedural aspects or best practices as to for example the costs of arbitration, and for which the institutions are well equipped to assist with. Moreover, as Ms. Fremuth-Wolf explained, there is always a designated case manager who is on the top of the case, monitoring and able to step in, in problematic situations. Furthermore, there is, in many institutions, the review procedure (ICC or VIAC) where another look at the arbitral award is taken. Of course, this is without any interference in the legal analysis and the outcome, but, for example, it would concern the issues related to the procedure or a double check on whether all of the issues have been dealt with and the clarity of the dispositive. Ms. Fremuth-Wolf encouraged young practitioners to “fight for their first appointments and be confident that they can do it”. Being young does not mean being inexperienced, she said.

 

Efficient Setup and Tribunal Secretaries

Milena Djordjevic gave further insights on how to get and keep first arbitral appointments. One of the problems young arbitrators face is big competition in the arbitration job market. It is difficult for practitioners to get the positions they deserve. Ms. Djordjevic highlighted that it is important to take the advantage of the pandemic situation and, in particular, the accessibility of the online events, webinars and conferences. Further, young aspiring arbitrators should seek to enhance their skills, which may include the knowledge of foreign languages. Studying in a different legal system than one’s own would be another consideration in terms of first appointments. The mix of common and civil law cultures may be helpful in understanding the arguments brought before the tribunal by the parties. Ms. Djordjevic also referred to a well-known dilemma: which came first: the chicken or the egg, with reference to the vicious circle of the first arbitral appointments. One may not be appointed because of lack of experience but if a person will not get appointed, she or he will not get any experience. However, Ms. Djordjevic believes that positions such as tribunal secretary make it possible for young practitioners to gain experience and become “visible”. She further raised a problem of lack of visibility of the tribunal secretaries and the fact that while institutions have started to publicize the arbitrators sitting in their cases, this has not been done for tribunal secretaries. Milena Djordjevic announced that this is changing, and as of 1 July 2021, the ICC will publish the names of administrative secretaries.

Regarding keeping the appointments coming, Milena Djordjevic mentioned that arbitrators must maintain efficiency, responsibility, avoidance of conflicts and diligence in ensuring that the award would not be set aside afterwards. Another important aspect to consider according to Ms. Djordjevic is to have a “good start” with counsel representing the parties. It is important to ensure that the relations between the members of the tribunal, between tribunal and counsel and between counsel of both parties are right. This also leads to ensuring that procedural order number one outlines all major issues. An important observation made by Ms. Djordjevic was that being a young arbitrator together with more-experienced arbitrators may be somewhat challenging in terms of trust from other arbitrators, but young arbitrators should be confident and, after prompt analysis of the issues, they should not be afraid to present their opinion.

 

Defaulting parties

Simon Gabriel continued with considerations related to defaulting parties and first arbitral appointments, which, as he stressed, may be quite disappointing situations for arbitrators in their first appointments. There are different reasons for default, including parties’ lack of experience with arbitration, false belief that arbitration is a dispute resolution similar to mediation, or even a procedural strategy or guerrilla tactic. Arbitrators facing default proceedings should search for guidance in the lex arbitri, institutional rules (for example Article 29.2 of VIAC Rules or Article 26.2 of the ICC Rules), legal scholarship, the New York Convention (Article V(1)(b) regarding minimum requirement for notification of the parties) or UNCITRAL Model Law (Article 25, which reflects a broad consensus on the issues of defaulting parties). Mr. Gabriel made reference to the song “The Show Must Go On” (Queen) explaining, that unlike many national courts’ practices, the arbitration must go on and arbitrators cannot simply rule against the defaulting party but consider all the issues at hand together with the evidence and promptly notify and inform both parties during the proceedings. This is of utmost importance especially for purposes of recognition and enforcement of arbitral awards.

 

Conclusion

The event has been a great opportunity for young practitioners to get an insight on how to seek the first arbitral appointment and how to maintain it. Speakers shared a very personal and practical experience of their own and also talked about the challenges faced along the way. RAI’s initiative is blooming and has a great significance for young arbitrators as well as for aspiring practitioners. Finally, one should follow the speakers’ advice: get yourself out there, be confident and do not think too much of the chicken and egg dilemma!

 

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The 10 Year Anniversary of the PCA Outer Space Rules: A Failed Mission or The Next Generation?

Tue, 2021-02-16 00:08

Nearly a decade ago, the Permanent Court of Arbitration (“PCA”) published its Optional Rules for Arbitration of Disputes Relating to Outer Space Activities (“PCA Outer Space Rules” or “Rules”).  Unlike the five United Nations treaties on outer space, the Rules provide for a voluntary and binding dispute resolution process accessible to all space actors.  Notably, they are specifically tailored to the space industry and represent a significant development in the field of space law.  Curiously, however, the PCA Outer Space Rules have not made much traction in the space industry.

This article explains key provisions of the PCA Outer Space Rules, discusses their limited success to date, and explores opportunities for their use in the future.  As the traditional 10-year anniversary gift is meant to symbolize preservation, longevity, and the ability to last through time, this article explores whether the Rules have been a failed mission or are the next generation for resolving space disputes.

 

Overview of the PCA Outer Space Rules

The PCA Outer Space Rules are based on the 2010 UNCITRAL Arbitration Rules (“UNCITRAL Rules”), which are well-established procedural rules that parties commonly use in international arbitration.  The introduction to the PCA Outer Space Rules notes that the Rules reflect “the particular characteristics of disputes having an outer space component involving the use of outer space by States, international organizations and private entities” and “the public international law element that pertains to disputes that may involve States and the use of outer space, and international practice appropriate to such disputes.”  The most notable aspects of the Rules account for the highly technical nature of space disputes:

  • Specialized Panel of Arbitrators:  Under Article 10(4) of the Rules, “[f]or the purpose of assisting the parties” in appointing arbitrators, the PCA Secretary-General shall maintain a list of individuals “considered to have expertise in the subject matters of the dispute at hand for which these Rules have been designed.” The PCA’s Specialized Panel of Arbitrators currently lists 12 lawyers and non-lawyers from Argentina, Australia, Brazil, Chile, China, the Dominican Republic, Israel, Korea, Paraguay, Spain, and Thailand.  In appointing arbitrators, the parties to the dispute or the appointing authority may, but are not obliged to, choose persons from the list.  Relatedly, pursuant to Article 6 of the Rules, only the PCA’s Secretary-General may serve as the appointing authority (unlike the UNCITRAL Rules which leave this choice to the parties).
  • Specialized Panel of Scientific Experts:  Under Article 29(1) of the Rules, an arbitral tribunal may appoint experts on “specific issues to be determined by the arbitral tribunal.”  Under Article 29(7), the PCA Secretary-General maintains “an indicative list of persons considered to have expertise in the scientific or technical matters in respect of which these Rules might be relied upon.”  The PCA’s Specialized Panel of Scientific Experts currently lists 10 scientific and technical experts from Austria, Brazil, Chile, China, Israel, Korea, the Netherlands, Paraguay, and Thailand.  The tribunal may, but is not obliged to, choose expert witnesses from the list.
  • Non-Technical Documents:  Under Article 27(4) of the Rules, the tribunal “may request the parties jointly or separately to provide a non-technical document summarizing and explaining the background to any scientific, technical or other specialized information which the arbitral tribunal considers to be necessary to understand fully the matters in dispute.”  This non-technical document can assist the tribunal in understanding the complex technical issues involved and deciding whether it would be useful to appoint a scientific or technical expert in accordance with Article 29 of the Rules.
  • Confidentiality:  Under Article 17(6) of the Rules, a party may apply to the tribunal to have certain information in the arbitration classified as confidential.  The tribunal will determine whether the information should be classified as confidential based on whether “the absence of special measures of protection in the proceedings would be likely to cause serious harm to the party or parties invoking its confidentiality.”  Alternatively, instead of a party disclosing the confidential information in the arbitration, the tribunal may appoint a confidentiality adviser as an expert (in accordance with Article 29) to review the confidential information and report to the tribunal on specific issues designated by the tribunal.

 

A Failed Mission?

States, international organizations, and private entities use international arbitration to resolve outer space disputes.  In fact, several space-related disputes have been resolved through institutional and ad hoc arbitration rules and procedures, including those of the International Chamber of Commerce (“ICC“), the London Court of International Arbitration (“LCIA“), and the International Centre for Dispute Resolution (“ICDR“).

However, there currently are no publicly reported arbitrations that have been resolved using the PCA Outer Space Rules.The PCA has administered disputes relating to outer space, but in those cases, the parties arbitrated their disputes under the 1976 UNCITRAL Arbitration Rules rather than the PCA Outer Space Rules. (See, e.g., CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Ltd., & Telcom Devas Mauritius Ltd. v. Republic of India, PCA Case No. 2013-09; Deutsche Telekom AG v. The Republic of India, PCA Case No. 2014-10)

What explains the low demand for the PCA Outer Space Rules?  We believe that analyzing the successes and failures of the Rules involves further exploring three areas of inquiry.

First, who are the parties that currently use international arbitration to resolve their space-related disputes?  Early evidence demonstrates that the current landscape of space-related disputes is overwhelmingly dominated by private entities in the satellite and telecommunications sector.  This raises the question of whether private entities are aware of, and refer to, the PCA Outer Space Rules and the PCA’s International Bureau (Secretariat) in their commercial contracts and agreements, or alternatively, at the advent of a dispute in cases of existing contracts and agreements.  Although the PCA is a well-established institution that enjoys the confidence of States and international organizations, do private entities know of – and hold – the PCA in the same regard?  At least one informal survey of industry respondents suggests insufficient awareness of the PCA.

Second, what is the nature and complexity of such disputes?  An analysis of the type and subject matter of disputes suggests that the disputes to date have primarily related to satellite launch and delivery, regulatory measures, and lease of satellite capacity.  Are the PCA Outer Space Rules well suited to resolve the types of disputes arising out of existing legal relationships?  What are the comparative advantages of the Rules in today’s highly competitive dispute resolution market?

Third, do existing arbitration agreements and treaties adequately accommodate the Rules, which are optional in nature?  The current United Nations treaties on space law hardly contain effective dispute resolution provisions.  Although the Annex of the PCA Outer Space Rules contains a model arbitration clause for contracts, how often do parties incorporate such model clauses to resolve their disputes?

These questions require further research as part of this growing field.

 

The Next Generation!

Do the PCA Outer Space Rules hold any future promise?  In our opinion, yes.  We believe that the use of the PCA Outer Space Rules will likely increase as the types of disputants and the complexity of space disputes continue to evolve.  This is because the future of international space law is rapidly transforming – as too is the space industry as a whole.  To this end, and as discussed here previously, the recently signed plurilateral Artemis Accords signal the interest of several spacefaring States in promoting the “civil exploration and use of outer space,” including resource extraction and utilization conducted under the auspices of the 1967 Outer Space Treaty.  Domestically, a number of States, including the United States, have established legal and regulatory frameworks for space exploration and use of space resources.

If successful, this shift away from State monopolization will create new opportunities and relationships for private entities around the world and, in the process, generate scientific, technical, and legal advancements that are likely to surpass the scope of procedure envisaged in the generic institutional rules used today.  Likewise, in order to keep up, future space treaties and governance mechanisms will require more robust dispute resolution mechanisms.  Like the visionary drafters of the PCA Outer Space Rules, industry respondents overwhelmingly support a preference for arbitration in resolving space-related disputes.  The Rules are well suited to meet this preference and resolve the next generation of space disputes.

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To Annul or not to Annul: The Constitutional Court of Ecuador Finally Set Clear Rules for the Annulment of an Arbitral Award

Mon, 2021-02-15 00:44

I .The Annulment of an Arbitral Award under Ecuadorian Law

Pursuant to article 30 of the Arbitration and Mediation Law (AML), arbitral awards are final and binding for the parties. In other words, parties cannot file recourses to challenge an award, with the exception of a clarification or extension petition before the arbitral tribunal. However, article 31 of the AML allows parties to file an action for annulment against an arbitral award under the following grounds: A) One of the parties has not been legally notified with the claim and the arbitration has been conducted in violation of said party´s rights; B) One of the parties has not been legally notified with the procedural orders issued by the tribunal and this fact has prevented them from exercising their rights; C) Evidence has not been produced or a party has not been legally notified of a hearing in which said evidence was going to be produced; D) The award refers to matters not submitted to arbitration or grants beyond what is claimed; and E) The procedures to appoint the arbitrators established under AML or agreed by the parties have been violated. According to the AML, the President of the Provincial Court where the award was rendered is the competent authority to decide on the annulment action. The annulment action was conceived for correcting in procedendo and incongruence vices contained in an arbitral award under the previously referred circumstances.

In 2012, a case under the number 169-12-SEP-CC was brought before the Constitutional Court regarding the possibility to file an annulment action on a ground (constitutional violations) different from the ones established under article 31 of the AML. The Court reasoned that the grounds for annulment under article 31 of the AML are exhaustive and that the President of the Provincial Court is not legally entitled to set aside an award under grounds not established in the aforementioned provision.  With respect to constitutional violations during an arbitral proceeding, the Court explored the applicability of constitutional remedies against arbitral awards. The Ecuadorian Constitution recognizes the right to challenge any final judgement in which constitutional rights have been violated, through a constitutional remedy called acción extraordinaria de protección. In this case, the Court concluded that given the arbitrators have jurisdictional faculties1)See article 7 of the Ecuadorian Code of the Judicial Function. jQuery('#footnote_plugin_tooltip_36110_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_36110_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and their decisions are similar to judicial ones, arbitral awards can also be reviewed through a constitutional remedy. Moreover, the Court reasoned that although arbitration is an alternative mechanism of dispute resolution, it has to observe the rights recognized under the Ecuadorian Constitution and, for this reason, constitutional review of arbitral awards is valid.

In 2015, the Constitutional Court changed its previous reasoning and issued the decision 302-15-SEP-CC concluding that the grounds for annulment under article 31 of the AML are not exhaustive and that an award can be set aside in other cases, for instance, when a tribunal lacks competence or when the award has not been sufficiently reasoned. According to the Constitutional Court, the due process rights to a reasoned decision and to be judged by a competent authority, which are recognized under article 76 of the Ecuadorian Constitution, also constitute grounds of annulment although they have not been expressly mentioned under article 31 of the AML. In its decision, the Court also required the exhaustion of an annulment action before a party attempts to challenge an award through a constitutional remedy. This decision certainly set a negative precedent for the development of arbitration in the country, particularly because it opened the door for an excessive judicial interference in arbitral proceedings and denaturalized the purpose of the annulment action. In light of this ruling, confusion among arbitration practitioners and local courts reigned with respect to the grounds for annulment of an award and the remedies available to challenge arbitral decisions.

 

II. Local Courts Annulled Awards under Grounds not Established in the AML

Given the lack of clarity regarding the annulment action, in 2017 the President of the Provincial Court of Pichincha decided to set aside two awards on different grounds from those established under article 31 of the AML. In case 17100-2017-00008 the President of the Provincial Court of Pichincha annulled the award, mostly, because he disagreed with the merits of the decision. According to the President of the Provincial Court, the award lacked legal reasoning and thus it violated constitutional rights recognized under article 76 of the Constitution. This decision is not in accordance with the AML, as the judges do not have the legal faculty to call into question the merits of an arbitral decision. As we mentioned earlier, annulment actions were conceived only for correcting in procedendo and incongruence vices and should not be used by local courts as vehicles to interfere in the autonomy of an arbitral proceeding.

In case 17100-2017-00005, the President of the Provincial Court annulled the award by taking a liberal interpretation of article 31 (d) of the AML, which refers to incongruence vices. The President of the Provincial Court of Pichincha basically questioned the merits of the award and the legal reasoning of the arbitrators in light of the evidence presented during the course of the arbitration. This conduct by the President of the Provincial Court of Pichincha constitutes a violation of the principle of judicial non-interference in arbitral proceedings and denaturalized the purpose of the annulment action. Moreover, this decision, which is more similar to an appeal judgement rather than to an annulment action, contradicts the legal certainty right of the parties submitting their dispute to final and binding arbitration.

Both of these decisions violate the doctrine of the autonomy of the parties´ will, as well as the legal certainty and legality principles recognized under the Ecuadorian Constitution.

 

III. The Constitutional Court Finally Set Clear Rules for the Annulment of an Arbitral Award

In 2019, the Constitutional Court issued three of the most relevant and positive decisions (31-14-EP, 323-13-EP, and 1703-11-EP) for the development of arbitration in the country, because they finally clarified the treatment of the annulment action.

In November 2019, the Constitutional Court issued decision number 31-14-EP, in which  it reasoned that:

  • The constitution recognizes arbitration as an alternative mechanism of dispute resolution, but it is still subject to constitutional review. This reasoning does not violate the judicial non-interference principle, but rather ensures that arbitral proceedings will respect constitutional rights.
  • The constitutional remedy known as acción extraordinaria de protección is applicable to control and correct constitutional violations in arbitral awards. Given the extraordinary nature of constitutional remedies there is a legal requirement to exhaust any ordinary available recourses before filing them. However, a party shall not be forced to file an annulment action in order to comply with this legal requirement before filing a constitution remedy in cases where the grounds of annulment are not sufficient to correct the constitutional violation.
  • An award shall only be set aside on the exhaustive grounds established under article 31 of the AML because this guarantees the legal certainty principle in arbitration. Hence, a party shall not invoke different grounds to annul an award.
  • In order to correct potential constitutional violations in an arbitral proceeding, such as lack of competence of the tribunal or lack of reasoning in the award, parties shall resort to the constitutional remedy known as acción extraordinaria de protección. In consequence, the review that the Constitutional Court makes during a constitutional remedy is different from the one in the annulment action.

This decision shows a different approach from the one contained in case 302-15-SEP-CC, in which the Court concluded that the grounds for annulment under article 31 of the AML were not exhaustive.

In November 2019, the Constitutional Court issued decision number 323-13-EP, in which it dissented from the case 302-15-SEP-CC and reasoned that:

  • Although it is not necessary to exhaust the annulment action before filing the constitutional remedy, it is worth noting that the lack of notification with the arbitration claim is considered under article 31, (b) of the AML for the annulment action. Hence, the respondent did have an ordinary recourse available (annulment action) to challenge the award on the grounds of lack of notification.
  • The annulment action imposes a civil sanction to the award. Hence, it shall only be applicable on the grounds established under article 31 of the AML, because this guarantees the legal certainty and legality principles. Depending on the situation, parties can either choose the annulment recourse (under the specific grounds of article 31 of the AML) or the constitutional remedy (constitutional violations not contained under article 31 of the AML).

In December 2019, the Constitutional Court issued decision number 1703-11-EP in which it reasoned that:

  • The annulment action is an especial procedure reserved for the grounds established under article 31 of the AML. The annulment action will only correct in procedendo or incongruence vices contained in the award.
  • Due to its very nature, parties cannot resort to other ordinary recourses (e.g. appeal or cassation) during the annulment process. However, if there has been a violation of constitutional rights during the course of the arbitration, particularly, lack of competence of the tribunal or lack of reasoning in the award, then a constitutional remedy could be filed in order to correct said violation.

 

IV. Conclusion

Article 31 of the AML provides only 5 grounds for annulment of an arbitral award in Ecuador, all of which are related to procedural matters, such as lack of notification with the arbitration claim or violations in the procedures for an arbitrator´s appointment. Since 2012, the Constitutional Court issued contradictory decisions on whether these grounds were exhaustive or not, which not only caused confusion among practitioners and arbitrators, but also opened the door for local courts to interfere in the merits of arbitral awards. Fortunately, this situation came to an end in 2019, when the Constitutional Court developed jurisprudence clarifying that awards may only be annulled under any of the grounds contained in article 31 of the AML. In case the award contains another vice (e.g. constitutional rights violation) not specifically established in article 31, then it was subject to be challenged through a constitutional remedy.

References[+]

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What Really Matters When an Arbitration Award is Made

Sun, 2021-02-14 00:00

Season two, episode twelve of Delos Dispute Resolution’s esteemed “Tagtime” webinar and podcast series is titled ‘Inside the Black Box: What Happens During the Deliberations and Drafting of an Award.’ The episode features Professor Pierre Tercier who is, among others, one of the most respected legal scholars in Switzerland. He is the Honorary President of the ICC International Court of Arbitration, author of more than 250 legal writings focusing on contract law and international arbitration, and chairperson of more than 100 international arbitrations.

As the episode title indicates, Professor Tercier and the TagTime hosts discussed what factors really matter during the deliberation process and drafting of an arbitral award, although they also touch upon other parts of the arbitration process from time to time. TagTime is a live webinar series showcasing discussions of substantive issues in international arbitration with leading figures in the field. At the end of the discussion and an audience Q&A, the guest speaker “tags” a guest speaker who will appear in a subsequent episode. TagTime is hosted by Amanda Lee and Dr Kabir Duggal. Below are some of the highlights from this episode.

 

Themes

The discussion was prefaced by three caveats or disclaimers that also served as the underlying themes of the episode.

First, it was emphasized that there are many ways to decide an individual case because arbitration is not as reliant on tradition or institutions as it is on the individuals that comprise the tribunals. As such, outcomes depend greatly on the composition of the tribunals.

Second, having different cultures and traditions involved in an arbitration means that there is no standardized way of deciding cases. This is part of the specificity and diversity of arbitration.

Third, what comes out of the “black box” is a result of what the parties put into it. In other words, the award is largely determined by the quality of the parties’ submissions, because these determine what the tribunal can do.

 

The Effect of Arbitrator Backgrounds

It is normal for a tribunal to be composed of members of different legal traditions and cultures, and this part of the arbitration is effectively in the parties’ control because they usually appoint the tribunal. It was explained that the way that justice is rendered by a tribunal is linked to the culture of its members.

From that vantage point, it was further explained that a good arbitrator understands that his or her law may not be the only way to solve the dispute. Every arbitrator comes from a different culture and legal tradition, and it is important to accept and be aware of this. But this does not mean that good arbitrators compromise; rather, it means that they work together to come to a solution that is acceptable to the tribunal and is adapted to the dispute. The key virtue in this instance is tolerance. Arbitrators are human. They come with their own views that each must strive to reconcile with the views of others. The most difficult arbitrator to work with is one who decides that he or she knows everything, has no doubts, and/or is narrow-minded.

The tribunal strives for a unanimous award because it is less likely to be overturned and is easier to enforce. Nevertheless, dissents and separate opinions are normal. It is to be expected that different people have their own reasons for deciding the way that they do. The role of the chairperson is to orient the discussion to allow the tribunal to come to a decision. The chairperson should build rapport among the members, allow the members to get to know each other, and prepare a procedure for answering the questions arising from the case in order to ensure smooth case management. However, one cannot impose their point of view.

It was confirmed that there are some party-appointed arbitrators intent on demonstrating, to the party that appointed them, their efforts in influencing the tribunal and preparing the award, and this can sometimes take the form of a dissenting opinion. However, this is a normal occurrence and by no means implies that the tribunal makes compromises during the deliberations.

 

“Splitting the baby”

Despite the common belief that tribunals tend to “split the baby,” so to speak, by finding a middle ground between the relief requested by the parties, compromise is rarely, if ever, the order of the day during deliberations. A study conducted by the ICDR debunked this idea. In fact, awards are often given completely in favour of one party.

The aim during deliberations is always to come to a decision, not a compromise. There is no “averaging” of opinions. An award that appears to be a compromise is merely a reflection of the difficult legal questions posed by the case, the varying views of the arbitrators, and the differences in the way that they evaluate the evidence. There may be some compromises during drafting, given that the tribunal strives as far as possible to write an award that is agreeable to each of its members.

 

Changing Practices

It was observed that, in the past, tribunals were generally active participants in the arbitration proceeding. Nowadays, the case is more in the hands of the parties. For example, the tribunal used to be more empowered to directly ask the witness questions – increasingly, the use of witness statements to elicit direct testimony is far more common. Moreover, the procedure of the arbitration used to result from a dialogue between the tribunal and counsel – increasingly, these matters are determined by the parties themselves while the arbitrators are more passive and adhere to what the parties decide. It was further observed that this is an area of arbitration that could use some improvement.

Virtual hearings are difficult. Besides the technical problems, communication has become more problematic. It has become challenging to assess a witness’ credibility and body language over a screen. Deliberations are also more difficult. There are certainly some advantages, such as the ability to see everybody’s faces easily. Interestingly, both counsel and witnesses seem to take much less time to speak at virtual hearings. But many of the personal touches that comprise the chemistry of arbitration, such as the ability to receive immediate reactions from the hearing’s attendees, as well as informal corridor discussions, are gone. That said, virtual hearings are very doable and necessary at present.

 

Differences between Deliberation and Drafting for Commercial and Investment Arbitration Awards

Two differences were mentioned at the outset concerning deliberation and drafting practices for awards in commercial as compared to investment arbitration. First, the process or the way the arbitrators decide the case and, second, the basis of the decision. Whether the arbitration is brought via a contract, an investment, or by a submission agreement makes a real difference. With respect to investment arbitration, it was observed that it may be necessary to have a mix of commercial and international law experts on the tribunal because of their differing expertise. Finally, investment arbitrations have been said by some to require more discussions and result in more disagreement and dissenting opinions. However, all told, the way commercial and investment arbitrations are addressed was considered to be the same, and one cannot easily differentiate between them. At the end of the day, these cases all involve businesses and money, with the implication that these cases are more alike than they are different.

 

Best Practices for Addressing the Lengthy Process of Deliberation and Drafting Awards

Drafting an award takes time. The tribunal must engage with the exhibits and footnotes of submissions before producing an acceptable draft. Sometimes, an arbitrator is not entirely convinced by the majority and is given some time to reconsider their position. Unlike counsel, who often have an army of support staff at their disposal, the tribunal is often relatively less well-resourced, and in many cases could use more assistance. Longer submissions can also lead to longer awards, which take more time to draft.

But the drafting of the award can be started ahead of time. The list of documents, the chronology, the arguments, and the relief sought are examples of matters that can be prepared in advance of a hearing. Deliberations can likewise begin early, not just after receiving the final submissions from the parties or after the hearing. The use of the Reed Retreat, where the arbitrators meet and discuss relevant topics prior to the hearing, was recommended. Discussions can be held during hearings. It was also advised that there be an immediate exchange of post-hearing first impressions.

Ideally, a shorter, straightforward award that does not touch on all the issues would also be quicker to draft and would be of superior quality to a longer one. But drafting such an award would take courage due to the risks it may bring of challenge or non-enforcement.

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A Happy New Year with the 2021 DIFC-LCIA Rules

Fri, 2021-02-12 21:44

At the dawn of the New Year, following their adoption in November 2020, the revised DIFC-LCIA Rules of Arbitration (the “2021 DIFC-LCIA Rules”) have now entered into force with effect from 1st January 2021. Readers of this blog will recognise the DIFC-LCIA as the free zone sister organization of the London Court of Arbitration (LCIA) which is headquartered in the offshore Dubai International Financial Centre (DIFC) in the Emirate of Dubai, United Arab Emirates. Closely related to and taking guidance from the London-based LCIA, the DIFC-LCIA tends to follow any revisions to the LCIA Rules of Arbitration (the “LCIA Rules”): The 2021 DIFC-LCIA Rules are no exception and take after the recent revisions introduced to the recently adopted 2020 LCIA Rules (previously discussed on the blog here).

The 2021 DIFC-LCIA Rules introduce a number of important changes, which – in their majority – are intended to assist the effective and efficient conduct of an arbitration process within a DIFC-LCIA forum. Such changes include the introduction of a so-called “early determination” procedure, improvements to the existing consolidation mechanism, and the digitalisation of the arbitration process coupled with the adoption of enhanced confidentiality measures and the establishment of a new data protection regime. Other changes include the formalisation of the role played by administrative secretaries in DIFC-LCIA arbitration, the expedition of tribunal appointments, the clarification of the emergency arbitrator’s powers, and enhanced transparency around the nationality requirement and ex parte communications with the Registrar. In the following, we briefly discuss these and other changes for some initial guidance.

 

Early determination

The 2021 DIFC-LCIA Rules allow summary treatment of claims, counterclaims, and defences by introducing a regime of early determination. More specifically, according to Article 22.1(viii) of the 2021 DIFC-LCIA Rules, a DIFC-LCIA tribunal has the power to “determine that any claim, defence, counterclaim, cross-claim, defence to counterclaim or defence to cross-claim is manifestly outside the jurisdiction of the Arbitral Tribunal, or is inadmissible or manifestly without merit; and where appropriate to issue an order or award to that effect.” This will facilitate an early disposal of vexatious cases that do not stand a reasonable chance of success, whether by reason of a tribunal’s manifest lack of jurisdiction or a manifest lack of merit.

 

Consolidation

The 2021 DIFC-LCIA Rules allow for the submission of so-called composite Requests and Responses: These allow parties to file a single request for arbitration for a multi-party or multi-contract arbitration (involving more than one arbitration agreement), inviting, in turn, a composite Response (Articles 1.2 and 2.2, 2021 DIFC-LCIA Rules) albeit that it does not facilitate automatic consolidation (a subject that might benefit from closer scrutiny in a future revision of the existing rules).

In a related context, a new Article 22A introduces an enhanced consolidation regime which allows the consolidation of arbitrations that deal with related transactional disputes, there being no strict requirement for the identity of the parties and/or the underlying arbitration agreements. Consolidation is also facilitated upon express party agreement.

 

Digitalisation

The 2021 DIFC-LCIA Rules introduce the use of technology across the arbitration process, thus accommodating in particular requirements that have arisen from the currently pending pandemic. By way of example, the Request for Arbitration and the Response are now required to be submitted electronically, rather than in hard copy, (Articles 1.3 and 2.3) “either by email or other electronic means including via any electronic filing system operated by the DIFC-LCIA Arbitration Centre” (Article 4.1, 2021 DIFC-LCIA Rules). Further, written communications with respect to the arbitration must be delivered “by email or any other electronic means of communication that provides a record of […] transmission” unless otherwise advised by the Registrar or the tribunal as the case may be (Article 4.2, 2021 DIFC-LCIA Rules).

Article 19.2 of the 2021 DIFC-LCIA Rules expressly authorises the remote conduct of hearings, stating that “a hearing may take place in person, or virtually by conference call, videoconference or using other communications technology with participants in one or more geographical places (or in a combined form).”

Finally, Article 26.2 of the 2021 DIFC-LCIA Rules allows an award to be signed electronically, with the electronic copy of the award prevailing over any inconsistent paper copy (Article 26.7, 2021 DIFC-LCIA Rules).

Taking account of the heightened use of digital communication under the 2021 DIFC-LCIA Rules, a new Article 30A introduces a set of powers and duties that require a DIFC-LCIA tribunal and the DIFC-LCIA to protect personal data by adopting information security measures as appropriate with respect to references pending before them.

 

Administrative secretaries

The 2021 DIFC-LCIA Rules introduce a new Article 14A, which transposes in relevant part the provisions on tribunal secretaries contained in the LCIA Notes for Arbitrators into the Rules. Article 14A strictly prohibits delegation of the tribunal’s decision-making function to tribunal secretaries, the tribunal remaining responsible for any tasks performed by them (Article 14.8, 2021 DIFC-LCIA Rules), and makes the appointment of a tribunal secretary subject to party approval (Article 14.10, 2021 DIFC-LCIA Rules). Like arbitrators, administrative secretaries are under a standing disclosure obligation with respect to any conflicts of interest and must declare their availability to devote sufficient time to the reference (Articles 14.9 and 14.14, 2021 DIFC-LCIA Rules).  Any change in the scope of the tribunal secretary’s works or increase in his or her fees (ranging hourly between AED 370 and AED 860) must be approved by the parties (Article 14.11, 2021 DIFC-LCIA Rules). Importantly, the costs of the administrative secretary qualify as Arbitration Costs within the meaning of Article 28.1 of the 2021 DIFC-LCIA Rules (Article 14.13, 2021 DIFC-LCIA Rules) and are as such readily awardable to a winning party in the arbitration.

 

Expedited tribunal appointments

The 2021 DIFC-LCIA Rules reduce the time within which the LCIA Court is to appoint a tribunal in the event of a respondent’s failure to submit a Response: As a result, the LCIA Court must now appoint the tribunal promptly after 28 days – as opposed to 35 days under the old Rules – from the date of official registration of the reference (i.e., from receipt of the Request and the registration fee).

 

Nationality requirement

Nationality has now been further defined to allow a more precise assessment of the nationality requirement in the appointment of arbitrators. By way of reminder, a sole arbitrator or a chair must not share the nationality of either of the parties where these are of different nationalities unless agreed otherwise by the parties in writing (Article 6.1, 2021 DIFC-LCIA Rules). Pursuant to Article 6.2 of the 2021 DIFC-LCIA Rules, nationality means a natural person’s citizenship and a legal person’s seat of incorporation or effective management; where these differ, the legal person is treated as a national of both.

 

Communication with the Registrar

The strict prohibition to engage in unilateral communications with other stakeholders, in particular the tribunal members, the administrative secretary, and the administrative staff of the DIFC-LCIA, in the arbitration in the terms of Article 3.3 read together with Article 13.4 of the 2021 DIFC-LCIA Rules is relaxed in favour of ex parte communication with the DIFC-LCIA Registrar with respect to “administrative matters” (Article 13.4, 2021 DIFC-LCIA Rules). This will allow less experienced parties to engage in unilateral conduct with the Registrar for, e.g., a better understanding of the operation of the 2021 DIFC-LCIA Rules.

 

Amendments to Request/ Response

Under the 2021 DIFC-LCIA Rules, parties may now make amendments to the Request or the Response, as the case may be, with the permission of the LCIA Court prior to the constitution of the arbitral tribunal. Such amendments are expressly stated to be limited to the correction of “any error in computation, any clerical or typographical error, any ambiguity or any mistake of a similar nature” and are subject to the parties having been afforded “a reasonable opportunity to state their views” and to “such terms as the LCIA Court may decide.” (Articles 1.5 and 2.5, 2021 DIFC-LCIA Rules) Provided this provision is exercised to the letter, it is to be welcomed as no more than procedural commonsense, there being no benefit to wait until later in the arbitration process for any correction of clerical mistakes (especially such that could materially affect the nature or value of the arbitration and thus the choice of arbitrators).

 

Confidentiality

In the interest of safeguarding the continued confidentiality of the arbitration process (and more specifically the deliberations of the tribunal, the arbitral award, and any material divulged in the arbitration), confidentiality undertakings are now imposed on all participants in the arbitration: arbitrators, administrative secretaries, party representatives, both fact and expert witnesses, and third-party service providers (Article 30, 2021 DIFC-LCIA Rules).

 

New time-limit for awards

Article 15.10 of the 2021 DIFC-LCIA Rules seeks to expedite the issuance of awards, requiring a DIFC-LCIA tribunal to render an award “as soon as reasonably possibly” (replicating the old wording of Article 15.10), with an endeavour to do so “no later than three months following the last submission from the parties” (additional new wording).

 

Tribunal’s powers to expedite

The 2021 DIFC-LCIA Rules confer a number of powers on a DIFC-LCIA tribunal to expedite the proceedings. This includes a power to limit or dispense with a party’s written submissions, oral testimony or a hearing and to employ technology to promote the expeditious conduct of the proceedings, including the hearing (Article 14, 2021 DIFC-LCIA Rules). The tribunal is more generally empowered to “make any procedural order it considers appropriate with regard to the fair, efficient and expeditious conduct of the arbitration.” (Article 14.5, 2021 DIFC-LCIA Rules) Evidently, to the extent that any of these powers limit a party’s right to be heard, they must be exercised with caution.

 

Emergency arbitrator’s powers

Under the 2021 DIFC-LCIA Rules, emergency arbitrators have been empowered to award costs, including legal costs, in the emergency arbitration proceedings, to revoke/vary/discharge any order they make, to issue additional orders, correct any clerical mistakes in any award rendered by the emergency arbitrator, and to render additional awards with respect to emergency relief previously overlooked (Article 9, 2021 DIFC-LCIA Rules).

 

Conclusion

The 2021 DIFC-LCIA Rules further enhance the free zone arbitration regime on offer in the offshore DIFC. It is encouraging to see that the DIFC-LCIA continues to promote increased efficiency and flexibility in order to meet requirements for more effective dispute resolution. How the new Rules will fare over time remains to be seen. That said, with the advent of the new Rules at the very beginning of 2021, arbitration users in the UAE and in the Middle East more generally will, more likely than not, have a Happy New Year ahead!

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Anti-Suit Injunctions in the EU: Are They Finally Back on the Menu?

Thu, 2021-02-11 23:24

While the United Kingdom (“UK”) was a member of the European Union (“EU”), the power of the English courts to grant anti-suit injunctions was considerably constrained by EU law. Now that the UK has left the EU, it is worth asking the question: are anti-suit injunctions back on the menu?

This blog post provides a snapshot of the English courts’ power to grant anti-suit injunctions, both before and after Brexit. In doing so, it will look at the question whether, and the extent to which, these types of injunctions might be revived in the light of the most recent legislation.

 

Brexit and the transition period

The UK left the EU on 31 January 2020. The UK’s departure from the EU led to the repeal of the European Communities Act 1972 (“1972 Act”), which, essentially, made EU law directly applicable in the UK.

The 1972 Act was repealed by the EU Withdrawal Act 2018 (“EUWA 2018”), which, inter alia, was intended to ensure an orderly period of transition post-Brexit. The EUWA 2018 was subsequently amended by the European Union (Withdrawal Agreement) Act 2020 (“EUWAA 2020”).

Part 1 of the EUWAA 2020 formalised the adoption of a period of transition (otherwise known as the implementation period). The implementation period started when the UK left the EU and ended on 31 December 2020.

During such period, the vast bulk of EU law, including decisions of the Court of Justice of the European Union (“the CJEU”) continued to have effect in the UK, and the same can be said about the rules relating to the CJEU’s jurisdiction over the UK.

 

The position pre-Brexit (in a nutshell)

Before Brexit, the limitations on the powers of English courts to grant anti-suit injunctions were well understood. Those limitations can be easily explained by reference to a handful of cases, namely West Tankers, Gazprom, and Nori Holding. The pre-Brexit position may be summarised as follows:

In West Tankers, the CJEU decided that court-connected anti-suit injunctions were incompatible with Council Regulation (EC) 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (“Brussels I Regulation”).

In Gazprom, the CJEU adopted a more flexible approach by concluding that the Brussels I Regulation did not preclude Member State courts from recognising and enforcing an arbitral tribunal’s award granting an anti-suit injunction.

The Brussels I Regulation was later repealed by Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Recast) (“the Recast Brussels Regulation”).

In Nori Holding, the English High Court was asked to consider, among other things, whether the CJEU’s judgment in West Tankers remained good law.

The High Court held that it did. It also held that the position as regards the granting of anti-suit injunctions was no different under the Recast Brussels Regulation.

 

The position after the implementation period and the notion of retained EU law

The EUWA 2018 has been accurately described as ‘a giant “copy and paste” exercise’, meaning that what was once regarded as EU legislation would later become a new form of domestic legislation, i.e., retained EU law. Yet the notion of retained EU law is to be treated with caution, not least because not all EU law has been fully retained.

The West Tankers case, for instance, has gained the status of ‘retained EU case law’, a new concept which is defined by Section 6(7) of the EUWA 2018. Whereas the Recast Brussels Regulation has been revoked by Regulation 89 of the Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 No 479 (as amended).

As a matter of English law, the High Court, as a first-instance court, is not bound by its previous decisions, with the consequence that the Nori Holding case may be cited (whether in the High Court, the Court of Appeal, or the Supreme Court) as persuasive — but not as binding — authority.

Furthermore, Section 6(4)(a) and (ba) of the EUWA 2018, in conjunction with Regulation 3(b) of the European Union (Withdrawal) Act 2018 (Relevant Court) (Retained EU Case Law) Regulations 2020 (“the 2020 Regulations”), make clear that neither the Supreme Court nor the Court of Appeal are bound by any retained EU case law.

Thus, the Supreme Court or the Court of Appeal may, potentially, depart from the West Tankers case and resuscitate anti-suit injunctions (if it appears right to do so), within the meaning of Regulation 5 of the 2020 Regulations and Practice Statement (Judicial Precedent) 1966.

Because the Supreme Court and the Court of Appeal (viz., the Civil Division) bind all lower courts, it is clear that, if they were to depart from West Tankers, the High Court would be bound to follow suit.

 

To depart, or not to depart, that is the question

In The Front Comor, the House of Lords (now the Supreme Court) stated that: ‘It is in practice no or little comfort or use for a person entitled to the benefit of a London arbitration clause to be told that (where a binding arbitration clause is being — however clearly — disregarded) the only remedy is to become engaged in the foreign litigation pursued in disregard of the clause’ (as per Lord Mance).

The CJEU’s ruling in West Tankers does nothing to address this problem. Quite the opposite, it deprives the party against whom foreign court proceedings have been brought of the opportunity to seek court relief in order to put an end to those proceedings, thereby thwarting that party’s right to obtain judicial protection against the party in breach.

However, West Tankers was decided under the Brussels I Regulation. Unlike the Brussels I Regulation, Article 73.2 of the Recast Brussels Regulation expressly states that it ‘shall not affect the application of the 1958 New York Convention’ (“the NYC”). Although the NYC does not explicitly refer to the availability of anti-suit injunctions, it can be said that anti-suit injunctions are certainly not incompatible with it.

On the contrary, it can be argued that anti-suit injunctions fall within the scope of UNCITRAL’s recommendation regarding the interpretation of Article VII(1) of the NYC, which provides for an all-embracing protection of the various different rights that a party to an arbitration agreement may have, whether under domestic or international law.

This is consonant with the UNCITRAL Secretariat’s Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which indicates that ‘a Contracting State will not be in breach of the Convention by enforcing arbitral awards and arbitration agreements pursuant to more liberal regimes than the Convention itself’ (at page 2).

As far as English law is concerned, the right to apply for an anti-suit injunction is embedded in Section 37 of the Senior Courts Act 1981. It is submitted that a party seeking to rely on this section in order to obtain injunctive relief in respect of the commencement or continuation of court proceedings in the courts of a Member State should no longer be deprived of such right.

 

Conclusions

So, what does the future hold for the English courts’ power to grant anti-suit injunctions in the EU?

The High Court’s decision in Nori Holding, albeit highly persuasive, is not binding on other High Court judges. Nonetheless, there is no doubt that good reasons will be needed to persuade the Court to depart from such a decision.

De lege data, it is plain that, should the circumstances so require, both the Supreme Court and the Court of Appeal may now grant an anti-suit injunction so as to restrain a party to an arbitration agreement from commencing or continuing legal proceedings before the courts of a Member State.

It remains to be seen, however, whether the Supreme Court or the Court of Appeal will eventually depart from the existing case law.

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Could an Appellate Review Mechanism “Fix” the ISDS System?

Wed, 2021-02-10 22:11

Introduction

In the past few years, the world has been following the Investor-State Dispute Settlement (ISDS) reform debate under the aegis of the United Nations Commission on International Trade Law (UNCITRAL). This discussion started in 2017, when the UNCITRAL Working Group III began its work on ISDS reform.

Among the proposals submitted by member States and other stakeholders, two systemic reform proposals call for the particular attention of academics and practitioners, as they may involve the replacement (total or partial) of the ISDS system. These are proposals for: (i) the establishment of a multilateral investment court; and (ii) the creation of an appellate mechanism.

Already, the European Union has successfully negotiated the inclusion of a permanent first instance tribunal and an appellate tribunal in its recent International Investment Agreements (IIAs). For some commentators, disputes arising out of the new EU IIAs could end in the destruction of the basic principles of neutrality, finality, and party autonomy. For others, the incorporation of an appeal mechanism in IIAs is not novel. In fact, in 2004 the International Centre for Settlement of Investment Disputes (ICSID) explored the possibility of creating an ICSID appeals facility, noting that at least 20 countries may have included an appeal mechanism in their IIAs.

I have argued elsewhere that the establishment of an appeal mechanism is more likely to be accepted by the international community than the creation of a multilateral investment court. This is in part because the proposal for a multilateral investment court presently envisages giving investors little role in appointing a first instance tribunal. Indeed, an appeal mechanism would allow the parties to continue selecting the decision-makers at first instance, while ensuring consistency and predictability in the system. But, while an appeal mechanism might be preferable over a multilateral investment court, is it the panacea for addressing ISDS concerns?

In this post, I contend that an appeal mechanism is not the panacea to all primary concerns associated with ISDS; namely, concerns pertaining to: (i) the lack of consistency, coherence, predictability, and correctness of arbitral decisions by ISDS tribunals; (ii) the lack of impartiality, independence and diversity of arbitrators and decision-makers; and (iii) the cost and duration of ISDS cases. As one commentator has noted, there is a need for holistic reform. Indeed, a holistic approach could address the broader legitimacy concerns over ISDS more effectively.

 

Why Implement an Appeal Mechanism?

The overarching purpose behind the establishment of an appellate review framework for investment arbitration is to enhance coherence and consistency in the ISDS system by creating an appellate body able to review manifest errors in the interpretation and application of treaty law. As highlighted by some commentators, such an appeal mechanism is expected to improve the quality and consistency of investment arbitration awards by moving towards a precedent-based system.

That being said, the establishment of a multilateral appeal mechanism is controversial. For some, the creation of an appellate mechanism could have a negative impact on the duration and costs of proceedings, thereby creating uncertainty in ISDS. I disagree.

While the appeal proceedings may entail additional time and costs (particularly if the tribunal is vested with the power of reviewing findings of fact), the appeal mechanism would substitute the annulment/set-aside proceedings, without adding an additional layer of control to the process. In other words, once the investor chooses to appeal the award, it would not be subject to annulment under the ICSID Convention nor could it be set aside or annulled by a court in the seat of the arbitration under the ICSID Additional Facility Rules or the UNCITRAL Arbitration Rules.

Furthermore, contrary to what has been argued, an appeal mechanism could avoid the additional costs produced by a second arbitration following the annulment of the decision of a first instance tribunal. Indeed, unlike in the domestic context where the remand of the issue to the lower instance is the general rule in some jurisdictions, an appeal tribunal in the arbitration context should be able to modify or reverse the legal findings and conclusions of the first tribunal without the need to remand the issue to a new tribunal.

 

What Should the Scope and Standard of Review Be?

In treaty-based arbitrations, arbitral tribunals are called on to interpret a wide range of standards included in IIAs, as well as a larger spectrum of principles and norms under public international law. The concerns are not the same where the basis for ISDS is a contract or domestic legislation. These factors would justify limiting the appeal option to treaty-based ISDS.

Appeals based upon errors of law are necessary in order to correct errors in treaty interpretation. Yet, this power should be limited and carefully drafted. There is, as has been highlighted, a need to clarify the scope of the ʻlawʼ in ISDS. Should it be limited to an error of law that is material and prejudicial? Should it include the application or interpretation of any applicable law (not restricted to investment treaties and notions in public international law)? Or instead, should it list specific treaty standards such as expropriation, fair and equitable treatment, and non-discrimination? The latter seems to be the most appropriate path to follow.

Similar to the notion of ʻlawʼ, there is a need to clarify the meaning of ʻfactʼ. I am of the view that errors in the appreciation of facts should be limited to manifest errors in the appreciation of the relevant domestic law and the assessment of damages, and not to any other error in the appreciation of the facts, even if this error is manifest. This would provide a substantial degree of deference to the findings of the first instance tribunal, reducing unnecessary costs and delays. Indeed, a complete de novo review of both law and facts could have a negative impact on the cost and duration of the proceedings.

In addition, the appellate tribunal should be able to grant or deny the appeal based on the annulment grounds of the ICSID Convention (Art. 52). This would ensure that the option for appeal was integrated into the ICSID system. By contrast, grounds for annulment or setting aside under the New York Convention may not be applicable to treaty-based arbitration.

UNCITRAL Working Group III is currently discussing possible scopes and standards of review for an appellate mechanism. In this context, the consolidated draft provisions on an appellate mechanism and enforcement include a reference to Article VI(1) of the New York Convention, which could leave room for intervention on domestic grounds of arbitrability and public policy. The New York Convention was not designed for investment arbitration. Keeping both lists of grounds (under ICSID and New York Conventions) could create a double standard, allowing the appellant to argue the most advantageous provision or combination of provisions to its case.

If the Commission decides to include grounds from the New York Convention that are not contained in the ICSID Convention, then it would be preferable to enumerate such grounds instead of referring to the relevant provisions of both Conventions, avoiding duplications. For instance, a departure from a fundamental rule of procedure under the ICSID Convention may cover Article V(1)(b) and V(1)(d) grounds of the New York Convention.1) Pursuant to Article V(1), the recognition and enforcement of the award may be refused, if: (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;… or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place. jQuery('#footnote_plugin_tooltip_36050_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_36050_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

When Should the Appellate Tribunal Dismiss the Appeal or Order Security for Costs?

Modelled on Rule 41(5) of the ICSID Arbitration Rules, the appellate tribunal should be able to dismiss the appeal where it is clear that the appeal is manifestly unfounded or frivolous. This has been included in recent negotiated IIAs (see, for example, the European Union-Singapore FTA).

Moreover, the tribunal should consider all relevant circumstances in determining whether to order the appellant to provide security for costs and the amount to be provided. Yet, the security for costs order should not unduly undermine the appellant’s ability to pursue its claim, as this may constitute a denial of justice. This would ensure a balanced approach, taking into account the different interests at stake.

 

Final Remarks

As I concluded in a recently published chapter focused on reshaping ISDS through an Appellate Review Mechanism,2)For further information, see The Investor-State Dispute Settlement System. Reform, Replace or Status Quo?, by Alan M. Anderson & Ben Beaumont (eds), (Kluwer International Law, 2020), 528 pp. jQuery('#footnote_plugin_tooltip_36050_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_36050_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); the introduction of an appeal system should favour “a balance between the finality and the correctness of arbitral awards.” Furthermore, the consistency and correctness of arbitral awards should not unnecessarily undermine the finality of arbitral awards by increasing the cost and duration of the proceedings.

This does not mean that an appeal mechanism would be the panacea for all the concerns related to ISDS, but it could at least be a significant step towards the improvement of the arbitration process. Other initiatives that are currently under consideration by Working Group III – for instance, a code of conduct for adjudicators, the adoption of specific rules on treaty interpretation, security for costs and frivolous claims, and third party funding – are also useful tools to further confirm the legitimacy of the ISDS system.

References[+]

↑1 Pursuant to Article V(1), the recognition and enforcement of the award may be refused, if: (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;… or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place. ↑2 For further information, see The Investor-State Dispute Settlement System. Reform, Replace or Status Quo?, by Alan M. Anderson & Ben Beaumont (eds), (Kluwer International Law, 2020), 528 pp. function footnote_expand_reference_container_36050_30() { jQuery('#footnote_references_container_36050_30').show(); jQuery('#footnote_reference_container_collapse_button_36050_30').text('−'); } function footnote_collapse_reference_container_36050_30() { jQuery('#footnote_references_container_36050_30').hide(); jQuery('#footnote_reference_container_collapse_button_36050_30').text('+'); } function footnote_expand_collapse_reference_container_36050_30() { if (jQuery('#footnote_references_container_36050_30').is(':hidden')) { footnote_expand_reference_container_36050_30(); } else { footnote_collapse_reference_container_36050_30(); } } function footnote_moveToAnchor_36050_30(p_str_TargetID) { footnote_expand_reference_container_36050_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Applying Vidya Drolia’s “Four-Fold Arbitrability Test” to Antitrust Disputes in India

Wed, 2021-02-10 00:33

Despite traditionally being considered unsuitable for arbitration, recent practice evidence that the concrete lines separating antitrust disputes and arbitration have blurred. Ever since the US Supreme Court approved arbitrability of antitrust disputes in Mitsubishi Motors v Soler (“Mitsubishi Motors”) (discussed here and here), similar understanding has been accepted in EU (Eco Swiss v Benetton), England (Microsoft Mobile OY (Ltd) v Sony Europe Limited), discussed here), Germany (Judgement 8 O 30/16, discussed here), Switzerland (Tensacciai v Freyssinet Terra Armata), France (SNF v Cytec, discussed here), New Zealand (Gvt. of New Zealand v Mobil Oil), Italy (Nuovo Pignone SpA v Schlumberger), Sweden (Systembolaget v Absolut Company), Canada (Murphy v Amway, discussed here), among others. That said, a similar pro-arbitration stance concerning antitrust disputes is not mirrored in several jurisdictions, including India. This post examines the arbitrability of antitrust disputes in India, in light of the recently expounded “four-fold test” by the Supreme Court of India (SCI) in Vidya Drolia v Durga Trading Corporation (Vidya Drolia).

 

Indian standpoint

The arbitrability of antitrust disputes has not been directly addressed in any case in India to date. The closest an Indian court has come to deliberate on the issue was in Union of India v Competition Commission of India (2012). In this case, the Delhi High Court decided an objection to the maintainability of proceedings before the Competition Commission of India (CCI) in light of an existing arbitration agreement between the parties. The Court upheld the jurisdiction of the CCI, and opined that the scope of proceedings before the CCI and the focus of its investigation would be different from the scope of enquiry before the arbitral tribunal. The Court also held that the mandate of the arbitral tribunal was limited to the contractual clauses, and it would not have the mandate nor the expertise to conduct an investigation necessary to decide antitrust issues between the parties. As a result, though the Court did not comment on the objective arbitrability of antitrust disputes, it latently implied that the adjudication of antitrust claims was not suitable for arbitration.

Arbitrability, otherwise, has been discussed in several Indian cases, most notably in Booz Allen and Hamilton v SBI Home Finance (2011) (Booz Allen) (discussed here). In Booz Allen, the SCI listed six categories of disputes which were non-arbitrable in India. However, it did not include antitrust disputes. Thereafter, in Ayyasamy v Paramasivam (2016), the SCI mentioned a category of disputes that were generally treated as non-arbitrable, which did include antitrust disputes (para 9). As the primary issue in Ayyasamy pertained to the arbitrability of fraud (discussed here and here), the categorisation of antitrust disputes as non-arbitrable was not a binding pronouncement.

 

Applying the four-fold test to antitrust disputes

In an attempt to streamline the test for arbitrability in India, on December 14, 2020, the SCI in Vidya Drolia expounded a “four-fold test” to determine when a dispute shall not be arbitrable in India:

(i) when the cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem;

(ii) when the cause of action and subject matter of the dispute affects third party rights; have erga omnes effect; require centralised adjudication;

(iii) when the cause of action and subject matter of the dispute relates to inalienable sovereign and public interest functions of the State; and

(iv) when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).

The SCI, by expressly acknowledging that subordinate rights in personam arising from actions in rem are arbitrable, paved the way for private adjudication of statutory claims in India. Applying this test, the SCI overruled Himangni Enterprises v Kamaljeet Singh Ahluwalia (2017) (discussed here) and held that landlord-tenant disputes, governed by the Transfer of Property Act, are arbitrable in India. Therefore, the arbitrability of antitrust disputes in India will depend upon the non-satisfaction of the aforementioned “four-fold test”.

Ordinarily, antitrust disputes carry a public character and concern adjudication of actions and rights in rem. This is reflected in Section 19 (1)(a) of the Indian Competition Act, 2002 (Act), which allows any person, regardless of whether or not such a person has suffered any damage, to approach the CCI to inform about contraventions of the Act. However, importantly, Section 53N of the Act also allows any aggrieved party to claim compensation arising from the in rem findings of the CCI, thereby requiring adjudication of subordinate rights in personam of the aggrieved parties. Similarly, antitrust claims arising in the context of pre-existing contractual relationships such as franchise agreements, joint-venture agreements, or distribution agreements will also require adjudication of subordinate rights in personam. In such cases, (i) and (ii) of the “four-fold test” will not be satisfied as the adjudication would concern rights inter se between the parties.

In this regard, a reference can be made to Murphy v Amway (2013), wherein the Canadian Federal Court of Appeal (FCA) ruled that a private claim for damages brought under Section 36 of the Canadian Competition Act is arbitrable. The FCA, to reach this conclusion, relied upon Seidel v Telus Communications (2011), in which the Supreme Court of Canada had distinguished between Section 171 (which allowed only the person who suffered damages to initiate a claim) and Section 172 (which allowed anyone to initiate a claim) of the Business Practices and Consumer Protection Act, 2004, and concluded that though claims under Section 172 would not be arbitrable, claims under Section 171 could go to arbitration. Drawing a parallel to India, private antitrust claims under Section 53N of the Act and pre-existing contractual relationships should similarly be arbitrable.

Moreover, as private antitrust claims do not ordinarily concern inalienable and sovereign functions of the State, (iii) of the “four-fold test” will also not be satisfied. In fact, inalienable and sovereign functions of the State are exempt from the mandate of the Act itself. Section 54 of the Act provides that enterprises may be exempted from the application of the Act if such exemption is necessary for public interest or such enterprise is engaged in the performance of sovereign or inalienable functions of the State.

The impediment to the arbitrability of antitrust disputes will still arise owing to the satisfaction of (iv) of the “four-fold test”. As CCI is a specialised statutory forum enjoying exclusive jurisdiction over antitrust disputes (Section 61 of the Act), it makes antitrust disputes non-arbitrable. This renders even subordinate rights in personam arising out of the Act to be non-arbitrable. The rationale behind this criteria, as highlighted by the SCI in Vidya Drolia, is to protect the special rights created by statutes and give effect to the legislative intent of stipulating an exclusive forum for the determination of such rights and liabilities.

Nevertheless, the suitability of this criteria to determine the arbitrability of disputes is questionable as arbitrators can give effect to the special rights and obligations created by the Act by applying the mandatory antitrust laws to the disputes. The SCI, in Vidya Drolia, acknowledges that considerations such as the need to apply mandatory law, the public policy objective of the statute, and the complexity of disputes do not preclude arbitration (paras 39-41). Parties have the freedom to appoint arbitrators with expertise in antitrust law, such that their rights can be efficiently determined. This was also highlighted in Mitsubishi Motors, wherein the US Supreme Court opined that arbitrators can be trusted to accord suitable remedies to the aggrieved parties by applying the substantive antitrust laws of the country (473 US at 635). Therefore, the creation of a specialised forum, i.e., the CCI, should not be the sole factor to preclude arbitration in antitrust disputes.

However, given that courts in India have previously strictly applied these criteria to hold disputes as non-arbitrable (see here, here, and here), it is likely that antitrust disputes will also be held as non-arbitrable in India.

 

Arbitrability in the international context

Non-arbitrability is a ground, distinct from public policy, for refusing enforcement under Section 34 (2)(b) (Part I; domestic awards) and Section 48 (2)(a) (Part II; foreign awards) of the Indian Arbitration & Conciliation Act, 1996 (IACA). Both the Sections provide similarly worded provisions. Importantly, the SCI in Vidya Drolia began its analysis with the caveat that the judgement does not examine or interpret the transnational provisions of arbitration in Part II of the  IACA (para 7). Therefore, in view of Vidya Drolia, the “four-fold test” is only applicable to arbitrations under Part I of IACA, and not to foreign awards.

In light of the “four-fold test,” the position in India concerning arbitrability of domestic antitrust disputes resembles the position in the US prior to Mitsubishi Motors, wherein the need for specialised adjudication of antitrust disputes precluded arbitration (American Safety doctrine). In this regard, it was pointed out by the US Supreme Court in Mitsubishi Motors that even if antitrust disputes are not considered arbitrable domestically in the US, they must be held to be arbitrable in the international context, with respect to international arbitration awards. It was stated that “concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties’ agreement, even assuming that a contrary result would be forthcoming in a domestic context” (473 US at 629).

Similarly, it is likely the test to gauge the arbitrability of disputes for foreign awards in India, under Section 48 (2)(a) of the IACA, will be narrower than the “four-fold test” for domestic awards (similar to the distinction between domestic and international public policy, discussed here). A narrower test is sensitive to the need to give effect to transnational agreements, international comity, and predictable framework for global business and trade.

 

Abhisar Vidyarthi is Advocate enrolled with the New Delhi Bar.

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Arbitrators as Flamingos of Many Colors

Tue, 2021-02-09 00:58

This post summarizes the International Court of Justice President Joan Donoghue’s discussion, on Delos Dispute Resolution’s TagTime series, with Dr. Kabir Duggal and Amanda Lee regarding cognitive biases of arbitrators, which are also applicable to judges. Judge Donoghue analogized the origin of those cognitive biases to how flamingos obtain their pink color, provided some examples where such cognitive biases occur, and suggested ways to respond to these biases.

 

The Literature on Cognitive Biases

The literature on cognitive biases suggests that all of us experience cognitive biases in our everyday lives. Therefore, it is inevitable that arbitrators are also subject to cognitive biases in their professional work. These biases are very difficult to overcome.

Examples of cognitive biases include, amongst others, confirmation bias and anchoring bias. Confirmation bias arises when an arbitrator gives more weight to evidence that supports his or her provisional view while downplaying other evidence. Anchoring bias often arises when numerical figures are introduced into evidence and thus is particularly relevant in questions of quantum.

The term “bias” has a pejorative connotation in the arbitration world. However, “bias” here refers only to the mere predilections and subtle influences on how each individual approaches the task before the tribunal, without suggesting an independence and impartiality issue that would give rise to a legitimate challenge of the award.

Cognitive sciences suggest that counsel, in their advocacy, may try to lure a tribunal towards a particular conclusion on two levels: (1) attracting the tribunal with a general impression that a specific outcome or conclusion is correct and (2) furnishing all exhibits supporting that general impression.

In this case, cognitive scientists recognize two modes of cognition that are in play for tribunal members. The first one is intuitive thinking, sometimes called “System 1” thinking, which draws arbitrators to feel that a particular conclusion is the right one. The second mode is sometimes called “System 2” thinking, which is a more deliberate and analytical form of thinking processes.

Arbitrators often react to parties’ arguments by forming a System 1 impression that something feels right. The literature suggests that arbitrators would do well to check this intuitive response with System 2 thinking. Close reflection is necessary because this proposed solution faces a risk that an arbitrator will succumb to confirmation bias, thereby, with the arbitrator’s feather colors, overvaluing the evidence that supports the conclusion reached in his or her System 1 thinking.

 

Arbitrators are Flamingos of Many Colors

Tribunal members often have to decide based on complex, incomplete, and inconsistent information. To make such a decision, arbitrators individually and collectively have to use mental shortcuts or heuristics, which are ideas, methods of reasoning, or approaches that have emerged from their professional experiences.

In that sense, arbitrators are like flamingos of variant colors. Flamingos in nature are all pink. However, they are not born with this color, but their diets, such as shrimps and other small organisms, gradually turn their feathers pink.

As a comparison, each tribunal member also has his or her own color of feathers, and such “color” was acquired through his or her professional “diet.” The color here represents the perspective and thought process that each arbitrator has. The professional diets refer to, for example, where one gets his or her legal education, whether one is trained in common law or civil law system, or his or her area of expertise.

It should be emphasized that the variation of arbitrators’ feather colors here refers only to those of professional experiences, without detracting from the importance of diversity and full representation concerning fundamental characteristics, for instance, geographic region, level of development, capital export/import, and gender.

 

Example 1: Common Law and Civil Law Distinction

Arbitrators from common or civil law backgrounds may have been exposed to different training. Such training might produce differences, for example, as regards the use of experts in legal proceedings. Training in the common law system is very focused on litigation and, thus, on law as an adversarial process in which each party gets a chance under a fair and balanced procedure to prove its case. Consequently, the concepts of the burden of proof and the standard of proof are crucial for decision-makers to deal with questions of facts. For arbitrators trained in the civil law system, on the other hand, there is a greater emphasis on the court reaching its own appreciation of the right answer.

This distinction in training can lead to different perspectives on a tribunal’s role in appointing scientific and technical experts. A civil law court would typically appoint an expert to advise or answer complex, technical questions and rely on that advice. However, court-appointed experts are not widely used in the common law system. Instead, consistent with the notion of an adversarial process, a party’s basic task is to prove the facts, or engage its own experts to do so, as an ordinary course of its pleadings.

The second common distinction between the two systems is the style of legal drafting. The decisions of civil law courts generally describe the parties’ positions in a detailed and isolated manner and then state the court’s conclusion without much detailed explanation of the reasoning. Common law courts do the exact opposite as they usually do not lay out in detail the arguments of each party but give very detailed reasonings of their conclusion.

Although trained in the common law system, Judge Donoghue has come to agree that having court-appointed experts in some situations is the right way to proceed. Regarding the style of legal drafting, while continuing to believe that it is vital for tribunals to provide explicit and detailed reasonings, Judge Donoghue has come to support the civil law practice of setting out clearly and in an isolated manner the arguments of each party. This description gives clarity to the losing party that the court understands the counsel’s arguments but disagree or decides otherwise regardless.

 

Example 2: Use of Key Terms and Principles

The same terms and principles may not have the same meanings to different people. For example, there is a long-standing jurisprudence within the European Court of Human Rights (ECtHR) on the phrase “margin of appreciation.” While European-trained lawyers may be used to utilizing that phrase without giving explanation, the phrase may not have the same meaning to lawyers trained outside of systems influenced by the European Convention on Human Rights (ECHR).

Another example is the term “manifest.” Under Article 52 of the International Centre for Settlement of Investment Disputes Convention (ICSID Convention), one ground of annulment of the award is “that the Tribunal has manifestly exceeded its powers.” In addition, Rule 41(5) provides an expedited procedure if a claim is “manifestly without legal merits.” Even in this situation where both provisions are within the ICSID ecosystem, the term “manifestly” does not necessarily have identical meanings. Outside of the ICDSID context, the term may be understood in a very different way.

In these instances, arbitrators should be mindful that others may not share the same understanding or appreciation of the use of specific terms or principles. They should be prepared to explain what a term or principle means and why it is applicable in a given situation while being ready to accept that others may disagree.

 

Suggested Approaches to Arbitrators’ Cognitive Biases

Arbitrators should not strive to have their “colors” bleached out, and as the cognitive bias literature suggests, it is challenging to do so. Instead, they should invest more time, effort, and energy into examining and acknowledging the effects that their individual “diets” have on the “colors” of their feathers, such as:

  • analyzing and questioning their own in-built perspectives with great care and reflecting on what drives them towards a particular conclusion or instinct; and
  • opening their minds and listening carefully to understand why their colleagues have different conclusions or instincts and the “diets” that cause such differences.

The tribunal secretary might also play an important role in responding to cognitive biases amongst arbitrators. For example, the tribunal secretary may point out that the tribunal may also wish to consider exhibits X, Y, and Z, which may not support a given conclusion.  This is particularly helpful in mitigating arbitrators’ confirmation biases in their System 2 thinking processes as cautioned above.

 

Conclusion

A flamingo acquires its pink color through its diet, while arbitrators acquire their perspectives and heuristics through their professional experiences. Since arbitrators have different professional experiences, in a way, they are like flamingos of varied “colors” conceived by their distinct professional “diets.” These “colors” may heighten cognitive biases, such as confirmation bias and anchoring bias. To cope with these cognitive biases, Judge Joan Donoghue suggests that arbitrators should make efforts to examine and question their own cognitive biases and the reasons thereof internally. In addition, within the tribunal, a tribunal secretary may question those biases as well. Both internal and external forms of questioning arbitrators’ cognitive biases are necessary to ensure that the best result is reached in every case.

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Arbitration or Court Proceedings in Emergencies: Tipping the Scale from a German Perspective

Sun, 2021-02-07 23:40

Introduction

An emergency by definition is a “sudden serious and dangerous event” that requires “immediate action”. For instance, shareholder A needs to prevent shareholder B from publicizing confidential information that will negatively affect the share price. Shareholder A finds herself in an emergency situation and needs to act immediately. According to a recent decision of the Bavarian Higher Regional Court arbitral emergency measures are enforceable in Germany. If the shareholder agreement contains an arbitration clause, shareholder A therefore has to choose whether to commence emergency arbitration or proceedings for preliminary relief in a national court.

This post provides a German perspective on some of the aspects an emergency-afflicted party may want to consider before applying for preliminary measures from a court or at an arbitration institution.

 

Step 1: Do You Have a Choice?

The first step for the emergency-afflicted party will be to find out whether the rules applicable according to the arbitration agreement foresee the possibility of commencing emergency arbitration proceedings. So far, almost all institutions have established rules for emergency arbitration. The German Arbitration Institute (DIS) along with the Vienna International Arbitral Centre (VIAC), however, decided against the introduction of rules for emergency arbitration. Even though the DIS reform commission thoroughly discussed the inclusion of emergency provisions in the 2018 revision of the DIS Rules they eventually decided against it, because – at the time – there were discussions in the German legislature to include such provisions in statutory arbitration law, which the commission did not want to anticipate.1)Ramona Schardt, Neue Regelungen der DIS-Schiedsgerichtsordnung zur Steigerung der Verfahrenseffizienz, SchiedsVZ 2019, 28, 34. jQuery('#footnote_plugin_tooltip_35994_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_35994_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); In cases where the rules of these institutions are applicable, an emergency application exclusively can be filed in national courts.

Another aspect shareholder A should consider before choosing between emergency arbitration and national court proceedings is the question of enforceability. An emergency order of an emergency arbitrator will be of limited use if the courts at the opposing party’s place of jurisdiction (usually where the opposing party’s assets can be located) do not enforce emergency orders of an arbitrator. For instance, courts in Russia, Sweden, Finland, or France will not recognize an emergency order as an arbitral “award” and therefore would deny enforceability.2)For further references: Philippe Cavalieros, Janet Kim, Emergency Arbitrators Versus the Courts: From Concurrent Jurisdiction to Practical Considerations, Journal of International Arbitration (June 2018), 275, 291 et seq. (pointing out, however, that jurisprudence is scarce and that in France provisional measures could be enforceable, if they were “finally ordered”). jQuery('#footnote_plugin_tooltip_35994_27_2').tooltip({ tip: '#footnote_plugin_tooltip_text_35994_27_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

In Germany, on 18 August 2020, the Bavarian Higher Regional Court (Bayrisches Oberlandesgericht, docket no. 1 Sch 93/20) decided on the enforceability of an arbitral interim order in an arbitration between shareholders of a German limited liability company (GmbH). The Bavarian Higher Regional Court emphasized that it was not the national court’s task to perform a full review of the arbitral tribunal’s decision on preliminary measures, and confirmed the emergency order as enforceable, because it complied with the following prerequisites:3)see also Matthias Goumas, SchiedsVZ 2020, 315, 318 commenting on the Bavarian Higher Regional Court’s order. jQuery('#footnote_plugin_tooltip_35994_27_3').tooltip({ tip: '#footnote_plugin_tooltip_text_35994_27_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

  • The emergency order was “plausible” and provided comprehensible reasoning regarding the ordered measure and its prerequisites;
  • The arbitral tribunal confirmed the order as appropriate and necessary without abusing its discretionary power;
  • The purpose of the emergency order and the ordered measure were proportional, in particular, the ordered measure did not prejudge the main arbitration on the merits;
  • The arbitral tribunal ordered an emergency measure that stayed within the limits of what a German national court could have ordered as emergency relief in a corporate dispute.

In any case, even if courts categorically refused to enforce emergency arbitration orders, the opposing party usually will comply with an emergency order in order to prevent a negative effect on the tribunal deciding in the subsequent main arbitration. The main tribunal may revise, vacate or reconfirm the emergency arbitrator’s order and grant its own interim order. The main tribunal may also render a final interim award, which would be enforceable in most jurisdictions in application of the New York Convention.4)In recent decisions the German Federal Court (Bundesgerichtshof, BGH) dismissed applications to set aside partial awards, BGH, 25 June 2020, I ZB 108/19, and BGH, 11 October 2018, I ZB 9/18, with comments of Maximilian Pika SchiedsVZ 2019, 150. jQuery('#footnote_plugin_tooltip_35994_27_4').tooltip({ tip: '#footnote_plugin_tooltip_text_35994_27_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Finally, before making a choice between emergency arbitration and court proceedings, the relevant contracts should be checked in detail. Some contracts provide specific language on emergency arbitration that can narrow or widen the available options. Even if an arbitration agreement specifically provides the option to apply for emergency measures, this does not mean, however, that the applicant cannot apply for emergency measures in national courts. In Germany, the Higher Regional Court Frankfurt am Main (Oberlandesgericht) confirmed on various occasions that an application for emergency measures in German courts is always available even if the parties agreed on an arbitration clause. In one decision of 13 June 2013, (docket no. 26 SchH 6/13), the Court decided on a football club’s application for a court order to be re-admitted to the DFB-Pokal, a football tournament, after the club had been excluded due to heavy crowd disturbances. The Court held that even if an arbitration agreement explicitly provided for the possibility to receive emergency relief from the arbitral tribunal, the club could apply for interim relief in national courts, “because such a provision hardly can be interpreted as an agreement to block access to national courts for emergency measures.” The football club’s application still was dismissed, as an arbitral tribunal had already decided that the ban from the tournament was valid (prohibition of a révision au fond). On 20 May 2020, the Higher Regional Court Frankfurt am Main reconfirmed this decision (docket no. 19 W 22/20). After the rest of the season was cancelled due to the outbreak of the Covid-19 pandemic, a table tennis club was relegated to a lower league. The Court confirmed that the club may apply for emergency measures against the relegation in national courts notwithstanding an arbitral agreement, but ultimately denied the club’s application on the merits due to lack of urgency.

 

Step 2: Where Do You Go?

Once shareholder A knows that she has at least two options in her emergency situation, she will be asked the question that pop band No Mercy contemplated in their 1996 song: Where do you go, my lovely? Should she apply for emergency arbitration or apply for relief in a national court? Pursuing both options unnecessarily will consume additional resources.

Unfortunately, the answer is not simple. The following table gives an overview of elements to be balanced. Every line shows a factor that could be considered, such as neutrality of the decision-maker, venue, costs, etc. The left column describes how each individual factor plays out in arbitration, the right column in national courts.

 

  Emergency Arbitration Preliminary Relief in National Court Decision maker · one emergency arbitrator

· usually with neutral nationality · one judge

· national of his jurisdiction Venue · place of arbitration at neutral venue (depending on arbitration agreement) · usually at defendant’s venue (home advantage) Language · language chosen by parties · in official language of the court’s jurisdiction (translation of documents, perhaps interpretation necessary) Institutional experience · administered by institution staff specialized in international commercial disputes

· arbitrator usually experienced in the subject-matter · administered by local court staff Procedural costs · usually flat rate (no consideration for amount in dispute)

· e.g. US$ 40,000 for ICC proceedings

· e.g. S$ 35,000 for SIAC proceedings · depend on law applicable for court fees

· usually depend on amount in dispute

· often lower than in arbitration Costs for legal representation · reimbursable at the discretion of the arbitrator

· usually lawyers’ fees calculated on an hourly basis · rules applying to domestic litigation usually more restrictive than rules applying to arbitration

· in many jurisdictions courts apply tariffs to costs

· in many jurisdictions capped depending on amount in dispute Enforceability · emergency order enforceable in various jurisdictions

· some jurisdictions deny enforceability

· non-compliance may have negative effect on the opinion of the tribunal hearing the case · enforcement through the ordering court

· generally enforceable only in the deciding court’s jurisdiction

· perhaps enforceable in other jurisdictions (e.g. Brussels I regulation for EU member states) Correlation with main proceeding · only possible before the full tribunal or sole arbitrator have been appointed and received the arbitration file (addressee for interim relief application would be tribunal in main arbitration)

· main arbitration has to commence shortly after (or concurrent with) the application for emergency proceeding (e.g. request for arbitration to filed 10 days after application in ICC proceedings; tribunal to be constituted 90 days after order in SIAC proceedings)

· emergency arbitrator excluded from acting as arbitrator in main proceeding

· tribunal in main proceeding may review, modify or vacate emergency order · possible before or after the main proceeding has commenced

· court may order applicant to commence main proceeding (e.g. s. 926 of the German Code of Civil Procedure, which allows a court to order the applicant to commence a main proceeding upon request of the opposing party)

· risk that court does not find urgency if main proceeding has not commenced yet

· tribunal in main proceeding cannot formally modify or vacate emergency order; still, tribunal in main proceeding formally is not bound by court order when deciding on merits of the case

 

Conclusion

In Germany, the decision of an emergency arbitrator would probably be enforceable and access to German courts is also available for emergency measures if the parties concluded an arbitration agreement. In order to choose between emergency arbitration and preliminary court relief, the emergency-afflicted party should carefully weigh the pros and cons of both options and they will surely find the desired relief.

References[+]

↑1 Ramona Schardt, Neue Regelungen der DIS-Schiedsgerichtsordnung zur Steigerung der Verfahrenseffizienz, SchiedsVZ 2019, 28, 34. ↑2 For further references: Philippe Cavalieros, Janet Kim, Emergency Arbitrators Versus the Courts: From Concurrent Jurisdiction to Practical Considerations, Journal of International Arbitration (June 2018), 275, 291 et seq. (pointing out, however, that jurisprudence is scarce and that in France provisional measures could be enforceable, if they were “finally ordered”). ↑3 see also Matthias Goumas, SchiedsVZ 2020, 315, 318 commenting on the Bavarian Higher Regional Court’s order. ↑4 In recent decisions the German Federal Court (Bundesgerichtshof, BGH) dismissed applications to set aside partial awards, BGH, 25 June 2020, I ZB 108/19, and BGH, 11 October 2018, I ZB 9/18, with comments of Maximilian Pika SchiedsVZ 2019, 150. function footnote_expand_reference_container_35994_27() { jQuery('#footnote_references_container_35994_27').show(); jQuery('#footnote_reference_container_collapse_button_35994_27').text('−'); } function footnote_collapse_reference_container_35994_27() { jQuery('#footnote_references_container_35994_27').hide(); jQuery('#footnote_reference_container_collapse_button_35994_27').text('+'); } function footnote_expand_collapse_reference_container_35994_27() { if (jQuery('#footnote_references_container_35994_27').is(':hidden')) { footnote_expand_reference_container_35994_27(); } else { footnote_collapse_reference_container_35994_27(); } } function footnote_moveToAnchor_35994_27(p_str_TargetID) { footnote_expand_reference_container_35994_27(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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AfCFTA, the Future Investment Protocol, and the Phasing-Out of Intra-African BITs

Sun, 2021-02-07 00:46

As Phase II negotiations of the African Continental Free Trade Area (“AfCFTA”) have been delayed due to the COVID-19 pandemic, a draft legal text of the AfCFTA Investment Protocol (“Protocol”) has not been submitted to the January 2021 Session of the Assembly, as originally expected.  There are reasons to believe that with the recent start of trading under AfCFTA rules on January 1, 2021, Phase II negotiations will be positively sped up at best. According to insiders, the Protocol that will result from these negotiations is likely to be modelled on the Pan African Investment Code (“PAIC”), or at least embody some of the Code’s key features. The Protocol will be an additional ingredient to the African spaghetti bowl of domestic investment laws/codes, regional investment-related instruments, and bilateral investment treaties (extra and intra-Africa). The co-existence of the Protocol and intra-African BITs might undermine the overall objective of harmonisation that is the focus for many African policymakers. The lessons learned from the European Union (EU) and intra-EU BITs has shown that increased integration creates a need for more harmonisation. This round of negotiation gives African States the opportunity to provide more predictability in the continental investment regime. This post proposes that African states should start with a clear phasing-out programme of existing intra-African BITs and the reasons for this approach are outlined below.

 

Oded Besserglik v Mozambique: A Reminder of the Status of Intra-Africa BITs

The Besserglik case can be described as a cas d’école, reminding investment arbitration actors  of the importance of looking carefully to the conditions of entry into force of the BIT that they wish to rely on. In this case, the arbitral tribunal unanimously declared itself incompetent to hear the claims because the underlying instrument of consent – the Mozambique-South Africa BIT – was not in force, both States having failed to comply with their respective notification obligations as required by Article 12(1) of the BIT. Accordingly, the Besserglik case shed a light on the status of intra-African BITs. Some of these BITs were concluded back in the 1980s, 1990s, and are still awaiting ratification. Examples include the Tunisia-Mauritania BIT (1986), Tunisia-Mali BIT (1986), Egypt-Uganda BIT (1995) and Angola-São Tomé and Príncipe BIT (1995). Although Article 18 of the Vienna Convention on the Law of Treaties (VCLT) requires States not “to defeat the object and purpose of a treaty” prior to its entry into force, the importance of a valid consent to arbitration – as well as the limited claims that might be brought concerning inconsistency with Article 18 – makes difficult the invocation of this provision. To the best of this author’s knowledge, no ISDS case to date has been brought on the basis of Article 18 of VCLT. According to UNCTAD IIA Navigator, out of 190 existing intra-African BITs, 130 are still not in force. Three main reasons, beyond the often-heard technical bureaucracy, may explain why African states have not set in motion the ratification process, or why these processes take so long.

 

Political agenda prioritised over economic diplomacy

A significant body of literature, particularly in the field of political science, links the conclusion of BITs to the existence of diplomatic relations between States, and describes investment treaties as a mean to consolidate those relations. Explaining why Ukraine was so eager to enter into a BIT with the United Kingdom in 1979, Lauge N. Poulsen declared “[…] BITs are often signed partly to promote foreign policy agendas […] or to tie in, diplomatic links between States”. This explanation could be transposed to the African context, where one could question the real intent of the State parties when signing intra-African BITs. Some of these countries probably did so with no motives of economic diplomacy at the time. In practice, BITs are often embedded in the large list of agreements government officials signed when on state visits.

 

The weak FDI flows between African States disincentivizes the ratification process

According to a recent study by the African Development Bank (AfDB), intra-Africa FDI from 2003 to 2017 was about USD 92.8 billion and allocated between four capital-exporting countries namely, Kenya (8%), Morocco (11%), Nigeria (9%), and South Africa (39%). Although encouraging, the study reminds us that intra-Africa FDI remains small, and confirmed the traditional axis of FDI which flows from North to South. When questioning the different treatment African States accord to intra-African BITs and those concluded with non-African parties, Gracious Avayiwoe, taking Ghana as a case study, suggests that the expected volume of FDI seems to be a determinant factor in the decision to ratify or not:

One may find it quite puzzling why Ghana would eagerly conclude BITs and be unwilling to ratify them. As the majority of the unratified BITs are south-south – mostly intra-African – with the other contracting parties having same or weaker economic and political strength than Ghana, it could follow that the country attaches much importance to its north-south BITs – perhaps as a result of the envisioned investment volume that may arise therefrom – by ratifying them to the neglect of the south-south BITs.

 

The impact of regional integration initiatives

The logic underlying the establishment of Regional Economic Communities (RECs), i.e., creation of a single market without discrimination, made redundant the need to maintain BITs between members of a same regional group, or even to ratify them because most RECs already provide instruments for investment protection with similar substantive rules.

 

Intra-African BITs: Rarely Invoked in ISDS

As a result of this lack of ratification, only 3 investment arbitration cases so far have been filed under intra-African BITs before ICSID, the world leading investment disputes resolution centre. These ICSID cases are now at different stages of the proceedings, with no significant prejudice should African States decide to implement a phasing-out plan:

The ICSID case figures should not overshadow that African States and investors also seek recourse before other fora, such as PCA or ad hoc arbitration under UNCITRAL Rules (for examples of cases filed under multilateral and regional agreements; see, e.g., Kontinental Conseil Ingénierie v The Gabonese Republic, filed under the OIC Investment Agreement; Burmilla Trust and others v Lesotho, filed under the SADC Investment Protocol).

 

A Roadmap for the Termination of Intra-African BITs

The question of intra-African BITs termination is not new as such; it has been discussed among African States at least since 2015 at the time of the negotiation of the PAIC. In contrast with the EU, where the termination of intra-EU BITs was motivated by their alleged breach of EU law, in the African context termination would be in support of harmonisation. There is currently no formal transfer of competence to the African Union or the RECs to conclude investment agreements on behalf of their member States.

The minutes of the Meeting of Experts on the consideration of the Pan African Investment Code held in Kampala (30 November – 2 December 2015) raised this issue for the first time: “it was observed that Member States may agree to replace intra-Africa BITs or investment chapters in intra-Africa trade agreements after a period determined by the Member States”.

In the same vein, Article 3(2) of PAIC reads as follows:

Notwithstanding paragraph 1, Member States may agree that this Code [PAIC] could be reviewed to become a binding instrument and to replace the intra-African bilateral investments treaties (BITs) or investment chapters in the intra-Africa trade agreements after a period of time determined by the Member States (1) or after the termination period as set in the existing BITs and investment chapters in the trade agreements (2)” (emphasis added)

Option 1, that is “after a period of time determined by the Member States”, requires political will. It could be implemented by either (i) an African Union Declaration inviting States to proceed with the termination of intra-African BITs (whether in force or just signed) following the entry into force of the AfCFTA Investment Protocol; or (ii) an article contained in the Protocol itself urging States within a  precise timeframe (e.g. 5 years) to dismantle existing intra-African BITs.

Recent news from the African Union suggests that African States may consider this option. During the 13th Extraordinary Session on the AfCFTA held on December 5, 2020, the African Union Ministers of Trade (AMOT) adopted a Draft Declaration on the Risk of Investor-State Dispute Settlement. According to insiders, the Draft Declaration provides for a mutual temporary suspension of ISDS provisions in BITs (although not yet public, discussions around the Declaration suggest that the suspension might apply to both intra and extra-African BITs), among other measures of mitigation to protect themselves against any claims for measures they could have taken in dealing with the pandemic. The Declaration is a significant impetus toward a broader complete phasing-out of intra-African BITs.

When considering Option 2, “after the termination period as set in the existing BITs and investment chapters in the trade agreements”, States might want to add in an “Intra-African BITs Termination Agreement” particular wording so as to exclude the effects of the “sunset clauses” contained particularly in BITs, which may extend the substantive provisions of the BITs for additional 5 or 10 years, just as the EU Member States did.

 

Concluding Remarks

What should be the role of the AfCFTA Investment Protocol in the pyramidal structure (domestic, regional, and continental) of investment regulation on the continent? The question will be at the centre of the negotiation of the Protocol. For the sake of harmonisation and predictability, States should consider a phasing-out of intra-African BITs. A majority of them being unratified, and quite a few of them having been invoked in ISDS cases, African States are in much better position than their EU counterparts, should they want to proceed with this option. The last hurdle to face is a matter of realpolitik, whether major African capital-exporting countries would agree on terminating their intra-African BITs. As an example in the midst of the Ethiopian Tigray crisis, Egyptian investors which suffered from the conflict are reportedly considering suing Ethiopia under the Egypt-Ethiopia BIT, if an amicable solution is not found. The challenge is surmountable provided that the Protocol, once adopted, is ratified in a very short period of time by all signatory parties.

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The Evolution of International Arbitration’s Scholarship and the International Arbitration Law Library Series

Fri, 2021-02-05 22:00

The publication of the 60th volume of the International Arbitration Law Library Series (“IALL” or “Series”) is a remarkable anniversary. The purpose of this blog post is to offer a brief assessment of the Series’ contribution to the field in the light of the evolution of international arbitration’s scholarship in the last 40-50 years.

It was in 1993 that Kluwer Law International (“Wolters Kluwer”) published the first title in the Series, by Moshe Hirsch, The Arbitration Mechanism of the International Centre for the Settlement of Investment Disputes. It is suitable to remember that, having registered only a single case in that year, ICSID  was hardly prominent outside a very small circle of practitioners. Hirsch’s monograph on ICSID was one of the very first titles on a subject that would come to dominate international arbitration’s scholarship in the next 25 years.

It is also appropriate to remember that, at the time the Series was introduced, arbitration was not considered a distinct legal field. It was treated as an integral part of other areas of law. For example, in Germany and in a number of other German influenced jurisdictions, such as Austria, the Netherlands, Greece, and Italy, arbitration was mainly treated as procedural law. This explains why arbitration laws in these countries were included in the national codes of civil procedure. Moreover, in France1)See the seminal Hague Lectures of Berthold Goldman, Les Conflits de Lois dans l’Arbitrage International de Droit Privé, 109 Collected Courses 347 (1963). jQuery("#footnote_plugin_tooltip_2833_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2833_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Switzerland, arbitration had been viewed as private international law or a conflict of laws subject, while in some parts of the common law world, arbitration had traditionally been treated as a version of ordinary contract law. This explains why at this time scholarly work in arbitration largely drew on theories, concepts, and doctrines of private international law, civil procedure, contract, and company law.

Equally importantly, arbitration was not considered a subject of academic importance, not least because of its close relevance to legal practice. Arbitration courses were not included in generalist law degrees (such as J.D. or LL.B. programs) or in LL.M. curricula (the only exception being the arbitration course developed and first taught in 1985 by Professor Julian Lew at the School of International Arbitration at Queen Mary University of London). As was then generally accepted, if one wanted to learn about arbitration, one should do so by practicing arbitration in a law firm.

The fact that arbitration law was mainly developed by practitioners had important ramifications on the scope of arbitration scholarship and the methods of research that were employed for research in arbitration. Practicing arbitration lawyers were not concerned with the concept or legal theory of arbitration or how socio-legal jurisprudence may relate to the subject of arbitration. Their focus was on scholarship that would directly respond to the problems they were facing in their arbitration practice. Their methods of inquiry were not empirical, scientific, contextual or interdisciplinary; their primary method of analysis was the traditional approach taken for legal research, namely doctrinal analysis that focuses exclusively on legal statutes and case law. Arbitration scholarship did not originally engage with the crucial movements and theories of international legal scholarship that advanced the concept of international law. Interdisciplinary research did not originally appear in arbitration scholarship, and arbitration law was never critically examined through the lens of political theory, international affairs or economics.

Equally, at that time, arbitration scholarship did not critically engage with legal theory and socio-legal jurisprudence. With the exception of a small number of French theorists,2)See generally, Daniel Cohen, Arbitrage et Société [Arbitration and Society] (1993); Bruno Oppetit, Theorie de l’arbitrage (1998); E. Loquin, L’application des règles nationales dans l’arbitrage commercial international, in L’apport de la jurisprudence arbitrale, 87 (1986). jQuery("#footnote_plugin_tooltip_2833_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2833_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the majority of arbitration scholars paid little to no attention to such subjects. Legal theory was often regarded as an academic “tempest in a teapot” or a discussion that “does not fully accord with what happens in the real world of international commercial arbitration”.

As a result, the main focus of arbitration scholarship was originally narrow. The agenda of arbitration scholarship and conferences until as recently as twenty years ago was dominated by practically oriented topics, such as the validity of arbitration agreements, the power of tribunals to provide interim relief, the role of non-signatories in arbitration, and procedural matters including the taking of evidence, enforcement of arbitral awards, the appropriate standards of impartiality of arbitrators, and cost-control and effective case management of arbitration proceedings.

The inception of the Series, thus, came at a time when the field of international arbitration was seeking to grow out of its subordinate and practical origins, and develop theoretical foundations as an autonomous legal field. It is thus fair to observe that Wolters Kluwer took a considerable risk in establishing the first academic series dedicated to a field which at the time was at a nascent stage.

Today, international arbitration is a thriving academic field. In contrast to when Professor Lew established his first course, there are now dozens of Law Schools offering dispute resolution LL.M. and Diploma courses worldwide. In parallel, there are several academic journals specialising in international arbitration, numerous conferences held every year, and a large number of arbitration articles and books published annually.

Looking back with the reassuring luxury of hindsight, the inception of the Series was a visionary decision. Of course, it was fitting to entrust the editorial supervision of the Series to Professor Lew, who has, arguably, contributed to the development of international arbitration as a distinct academic field more than anyone. He was among those who wrote the first monographs on international arbitration. In addition to founding the School of International Arbitration, Queen Mary University of London which was the first academic institution dedicated to the teaching and research of international arbitration, Professor Lew wrote the first doctoral thesis in English on the subject of international arbitration. His monograph on the Law Applicable in International Commercial Arbitration was published in 1978 and – together with Philippe Fouchard’s L’arbitrage Commercial International (1965), Pierre Lalive’s Hague Course on Problèmes Relatifs a l’Arbitrage International Commercial (1967), Albert Jan Van Den Berg’s The New York Convention of 1958: Towards a Uniform Judicial Interpretation (1981) and W. Laurence Craig, William W. Park and Jan Paulsson’s International Chamber of Commerce Arbitration (1984) – is widely considered one of the theoretical foundations of arbitration as an autonomous international field.

Reflecting Professor Lew’s vision for introducing the first English series of volumes on quality theses and monographs, the Series’ approach to commission and publication of volumes has been comparative, international, and inclusive. The Series has published a wide range of dispute resolution works, from mediation and commercial arbitration to energy, maritime, and investment arbitration; from private law to public international law; from conflict of laws to contract and procedural law.

The inclusive approach and cosmopolitan outlook of the Series reflects a dynamic idea of arbitration law that transcends the often narrow boundaries of legal fields and legal traditions. Indeed, arbitration scholarship in the last twenty years has become more diverse and interdisciplinary. This is not only because non-arbitration scholars have developed an interest in arbitration, but also because arbitration scholars have started to examine arbitration against a wider context.

Investment arbitration was the catalyst here, which prompted scholars to examine how arbitration interacts with public international law and human rights, for example. Other scholars, mainly French theorists, critically engaged with legal theory and socio-legal jurisprudence, arguing that the increase of institutional actors in arbitration, including arbitral institutions, specialised law firms, professional arbitrators, and experts, has changed the social structure of international arbitration. Arbitration has equally attracted interest from international relations scholars to critical legal theorists, constitutional and administrative law scholars. Very interestingly too, research on arbitration is now conducted with the use of non-traditional methods of research, at least for arbitration. While traditional methods of doctrinal analysis are still the most popular method of research in international arbitration, a wave of studies has been produced in the last twenty years using social science methods of research. Poignantly, such scholarship has made us realise that international arbitration is more than a body of black letter laws, that it affects society, the wider public, and the rule of law.

In this regard, the Series was influenced by, and contributed to, the growth, diversity, and interdisciplinarity of international arbitration’s scholarship as an academic subject, publishing arbitration related titles on human rights, the environment, but also works on empirical research, economic analysis, and psychology.

Perhaps the single achievement that I, as co-editor of the Series, am most proud of is that all these years the Series displayed a distinct sense of academic purpose, publishing the works not only of established practitioners (see, for example, Gabrielle Kaufmann-Kohler (with co-author Thomas Schultz, Bernard Hanotiau, Mark Kantor, Franco Ferrari (with co-editor Friedrich Rosenfeld), Luke Nottage (with co-editors Shahla Ali, Bruno Jetin, and Nobumichi Teramura) and Hamid Gharavi) but also – and importantly – the prototype works of young and talented academics and practitioners (see, for example, Monique Sasson, Rémy Gerbay, Mary Mitsi, Ileana Smeureanu, Alfonso Gómez-Acebo, Zena Prodromou and Ali Yesilirmak).

Since the inception of the Series, international arbitration has been one of the most diverse, dynamic, and indeed exciting fields of international law. The Series has inevitably benefited from the extraordinary growth of arbitration. But we also want to believe that the Series’ contribution to the scholarship of international arbitration has been real and important.

 

Stavros Brekoulakis is Professor of International Arbitration, Director of the School of International Arbitration, Queen Mary University of London, and Co-Editor (with Professor Julian Lew) of the International Arbitration Law Library Series, published by Kluwer Law International.

References   [ + ]

1. ↑ See the seminal Hague Lectures of Berthold Goldman, Les Conflits de Lois dans l’Arbitrage International de Droit Privé, 109 Collected Courses 347 (1963). 2. ↑ See generally, Daniel Cohen, Arbitrage et Société [Arbitration and Society] (1993); Bruno Oppetit, Theorie de l’arbitrage (1998); E. Loquin, L’application des règles nationales dans l’arbitrage commercial international, in L’apport de la jurisprudence arbitrale, 87 (1986). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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The Development of International Arbitration as a Mechanism For Determining International Business Disputes

Fri, 2021-02-05 21:55

Professor Stavros Brekoulakis has written a blog post commemorating the 60th volume of Kluwer Law International’s International Arbitration Law Library Series (“Series”), of which he and I are co-editors. His blog post considered the Series’ contribution to the field in light of the evolution of international arbitration’s scholarship in the last 40-50 years. In particular, he reflected on the founding of the School of International Arbitration, Queen Mary University of London in 1985, which was the first academic institution dedicated to the teaching and research of international arbitration. In the intervening years, international arbitration has continued to grow and mature as a field, and so too has related research and scholarship. Reaching the 60th volume of the Series is only one such example; however, it is a significant one. To mark this moment, I wish to offer some perspectives on the background to the development of international arbitration in the 1960s-1980s, and the founding of the School of Arbitration in 1985.

When we established the School of International Arbitration we had a clear vision: to establish a centre of excellence to research, teach and participate in the development of international arbitration as a stand-alone subject. We aimed to provide our students with an understanding of the aims, structure and workings of international arbitration as an independent, flexible and appropriate mechanism to determine disputes arising from international transactions of all kinds in an efficient and effective manner.

There were three prevailing geo-political factors at that time which heralded the beginning of a new era for international arbitration.

First, following the end of WWII, was the emergence of many new and independent states, particularly in Africa and Asia, in the 1950s and 1960s. This was the end of the colonial period. The opportunities from trading internationally were apparent and the circumstances to support these opportunities became the focus of international institutions and national governments.

Second, following on the first point, was the beginning of globalisation and increasing international commercial reliance and business transactions. This was spurred on with the development of telecommunications and the need of the business world for new markets and places of business. National focuses were replaced by global visions.

Third, and perhaps the most significant for the School of International Arbitration, was the emergence and acceptance of an international and neutral infrastructure for international arbitration. This was started in 1958, when the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards was concluded. Today this is the cornerstone of international arbitration, to which over 168 countries are party.

The 1960s saw a flurry of developments:

  • The 1961 European Convention on International Commercial Arbitration (mainly between western and eastern countries). To date, the Convention has 16 Signatories and 31 parties.
  • In 1965 regionally focused arbitration rules for international commercial arbitration were developed by United Nations Economic Commissions for Europe and for Asia and the Far East.
  • These were the forerunners to the UNCITRAL Arbitration Rules 1976.
  • In 1966 through the influence of the World Bank, the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States, and the establishment of ICSID, provided a system for determining disputes between investors and the States in which they had invested. To date, 163 States have signed the Convention, of which 155 have ratified it.
  • In the early 1980s UNCITRAL also proposed the Model Law on International Arbitration which States could incorporate into their national laws. To date 84 States (for 117 jurisdictions) have adopted the Model Law, in whole or in part.

As we know now, these factors all have contributed to the development of international arbitration practices, with accepted basic legal principles and practices followed in arbitrations conducted under different systems and different laws.

Whilst there were many institutions offering arbitration facilities around the world, the only active international arbitration institution at that time, with a significant caseload, was the International Chamber of Commerce. The other institutions were focused on domestic arbitrations or were offering arbitrations for special circumstances, e.g., the Stockholm Chamber of Commerce, which the American Arbitration Association and the Soviet Foreign Trade Arbitration Commission had agreed should be the forum for disputes between US and USSR entities.

In many countries and legal systems there was no real concept of international arbitration.  There were few truly international arbitration specialist lawyers. Many of those were professors of private international law, public international law, international commercial and comparative law. Even if law firms had lawyers with some experience of international arbitration, few such firms boasted great expertise in international arbitration.  In most national jurisdictions, arbitration was seen either as a subject of procedural law, or a contractual arrangement between parties.

Even where parties were of different nationalities, and the underlying business arrangement out of which their dispute arose was in other countries, most national systems considered the arbitration to have the nationality of the country in which it had its seat. This often also indicated the law and procedure to govern the arbitration and the substantive issues in dispute and enabled national courts to claim the right and obligation to review the process followed and decision reached by arbitrators. That is why in many countries arbitral practice mirrored how proceedings were conducted in the national courts. Today, subject to mandatory laws, there is greater flexibility in the right of parties to choose the applicable substantive law or rules to govern their relations, and the procedure to be followed in the conduct of the proceedings.

At that time, there was nowhere to study international commercial arbitration as a stand-alone subject.  Arbitration was considered in some jurisdictions as a subset of procedural law; in other places, it was a contractual arrangement between the parties as to how disputes should be resolved, and was considered similar to all other contractual terms. In these jurisdictions, it was subject to control and supervision, more or less, by the national courts.  International arbitration was not considered a subject in its own right.

Our vision at the School of International Arbitration was to present international arbitration, commercial and investment, as a distinct and independent subject, with its own specific character, requirements, practices and infrastructure. We wanted to provide a venue where students could learn about international arbitration, its essential characteristics, infrastructures, international regulations, soft law and other instruments, as well as the fundamentals, concepts and issues which arise in practice.

An essential criterion for international arbitration was its non-nationality. Hence the requirement that arbitrators should be independent and impartial, and that all parties should be equally viewed in the context of the arbitral process. It was increasingly accepted that national procedural and substantive laws were not necessarily appropriate for an international arbitration with parties from different and often disparate jurisdictions.  Whilst recognised in principle these concepts were to be developed into fundamentals of international arbitration in light of decreasing confidence of parties receiving a fair hearing in national courts. These principles are still followed and considered fundamental to international arbitration today and, through the decisions of national courts, they have become clearer and even more entrenched.

In this light there were three key elements in the arbitration courses and other programs which were developed by the School of International Arbitration: private international law, public international law and comparative law.  This was pertinently summarised by Professor Pierre Lalive at the inaugural conference of the School of International Arbitration when he expressed the view that an international arbitrator “should have a good command of contract law, commercial law, procedure, private international law and preferably also public international law” but should also have some experience “of comparative law and the comparative method”.1)P Lalive, “International arbitration – teaching and research”, in Contemporary Problems in International Commercial Arbitration, ed Julian D M Lew, 1986, Centre for Commercial Law Studies, at p 16. jQuery("#footnote_plugin_tooltip_6996_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6996_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

These subjects were considered the essential tools for practitioners and arbitrators where parties are from different legal and cultural backgrounds. They remain fundamental to the work of the School of International Arbitration today and to the specialist international arbitration lawyer.

Private international law and conflict of law rules are important as they direct the determination of the applicable national or non-national governing law and the applicable relevant rules to apply. This relates not only to the law to govern the substantive issues and the arbitration agreement, but also relevant procedural issues within a non-national and independent system arbitral context. It also is frequently relevant to other incidental but important issues, such as rights and duties of legal entities, the form of documents and evidence, and the obligations and behaviour of legal counsel.

National legal systems have their conflict of law rules applicable in a domestic context.  There are no default rules for choice of law in international arbitration. Most arbitral institutions now have choice of law rules to be applied by tribunals. This includes the right of arbitrators to make a direct choice of the applicable substantive law to apply based on the facts and circumstances of the case, or to choose and apply a conflict of law rule which the tribunal considers appropriate to direct it to the applicable law. Arbitrators are also able to apply non-national rules such as the lex mercatoria and soft laws to the substantive dispute, or decide issues ex aqua et bono where appropriate.

Public international law was important because States have always been involved, directly or indirectly, in international business, and influence transactions through their laws and policies. This has expanded enormously with the now mainstream of investment arbitrations under the ICSID Convention and other treaties, e.g., NAFTA, USMCA, ECT, CAFCA, and bilateral investment treaties.

Comparative law brings clearly the need to understand that at all levels of legal direction, there are different national ways of dealing with legal and practical situations. This includes, e.g., burden of proof and weight of evidence, discovery/document production, presentation of evidence, examination of witnesses, reports of experts, legal privilege, awarding costs. It is important to understand these concepts which apply with differences in all international arbitrations, often determined specifically for each arbitration depending on its facts, the applicable rules, the origin of the parties, the seat of the arbitration and the background of the arbitrators.

A major change since the establishment of the School of International Arbitration is that now, after 35 years, many law firms and many individual lawyers have expertise in international commercial arbitration, including international investment arbitration, with dedicated teams working in these areas. International arbitration has become almost a core subject in many university programmes. Many of our former students have joined major law firms, big corporations, arbitration institutions, and government service where they are involved with international arbitration; there are also former students now professors and lecturers on international arbitration in many countries.

This level of maturity and growth has been enabled by continued study, research and scholarship. It is therefore fitting that the Series covers a wide range of works related to international arbitration, spanning from mediation and commercial arbitration to energy, maritime and investment arbitration; from private law to public international law; from conflict of laws to contract and procedural law. Professor Brekoulakis and I view it as a venue to explore and better understand current debates and important issues in the field.

Having now reached the milestone of 60 volumes, we look forward to the scholarship that will take us to 100 volumes and beyond.

 

Professor Julian Lew QC is Professor of International Arbitration and Head of the School of International Arbitration, Centre for Commercial Law Studies, Queen Mary University of London. He has held these positions since the School’s creation in 1985. He is Co-Editor (with Professor Stavros Brekoulakis) of the International Arbitration Law Library Series, published by Kluwer Law International.

 

 

 

References   [ + ]

1. ↑ P Lalive, “International arbitration – teaching and research”, in Contemporary Problems in International Commercial Arbitration, ed Julian D M Lew, 1986, Centre for Commercial Law Studies, at p 16. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Decisions of the Swiss Federal Supreme Court in 2020

Fri, 2021-02-05 00:42

This report highlights the most significant arbitration related decisions of the Swiss Federal Supreme Court (the “SFSC”) issued in 2020.

 

Tribunal’s Jurisdiction – Scope of Arbitration Agreement

In 2020, the SFSC issued several decisions on the jurisdiction of an arbitral tribunal and on the determination of the objective (ratione materiae) and subjective (ratione personae) scope of arbitration agreements.

In decision 4A_342/2019 (06.01.2020), the SFSC dealt with the interpretation of arbitration agreements with regard to their objective scope. A and B initially negotiated three contractual documents, the Terms of Purchase, the Corporate Agreement, and the Quality Assurance Agreement (QAA). They finally signed only the QAA, which contained an arbitration clause for “contract disputes”. Because a dispute arose, B initiated arbitration raising claims that did not arise from the QAA. The tribunal, in a partial award, upheld its jurisdiction over such claims, and A appealed to the SFSC to vacate the award. The SFSC dismissed the appeal. It stated that the interpretation of an arbitration agreement follows the general principles of contract interpretation (discussed here). Where it is established that the parties agreed on the jurisdiction of an arbitral tribunal, there is no reason for a narrow interpretation of the arbitration agreement. In view of the declarations of intent exchanged between the parties, the arbitration clause in the QAA applied to the entire commercial relationship. This was not a question of extending the arbitration clause to other independent contracts, but rather a question of how the arbitration clause could be understood in good faith, i.e., based on the principle of normative interpretation.

In decision 4A_12/2019 (17.04.2020), the SFSC dealt with a dispute arising out of a license agreement in which the licensor A granted the licensee Z the exclusive right to promote, establish and operate seafood bars in airports and train stations around the world. A also authorized Z to grant sub-licenses to its subsidiaries. The agreement contained a clause conferring rights to sub-licensees under Article 112 CO. Z indeed sub-licensed certain rights to its subsidiary. According to the SFSC, the question of whether a claimant or a respondent is a party to an arbitration agreement – a question concerning the jurisdiction of an arbitral tribunal – should not be confused with the question of a party’s standing to sue or to be sued, which is a matter of substance of the claim. The SFSC dismissed A’s appeal to vacate the award confirming the tribunal’s jurisdiction. It held that, where an arbitration clause covers disputes relating to damages resulting from a breach of contract, it does not matter whether the claimant asserts his own damage or that of a third party. In either case, the dispute falls within the scope of such an arbitration clause.

In decision 4A_124/2020 (13.11.2020), the SFSC dealt with the subjective scope of an arbitration agreement. The dispute arose from supply contracts (all of which contained identical arbitration clauses) between the supplier B and several buyers (Contracts), concerning the construction of diesel power plants. B contracted out the supply of diesel engines for the power plants to the subcontractor A. After the installation of the diesel engines, several technical problems occurred. After unsuccessful attempts to fix the problems, the buyers refused to fulfill their payment obligations under the Contracts. B then initiated arbitration proceedings against the buyers. The buyers requested that A be included as a party in the arbitration. A contested the jurisdiction of the tribunal. In a partial award, the tribunal affirmed its jurisdiction over A based on normative interpretation of A’s behavior according to the principle of good faith.

The SFSC vacated the partial award noting that, in Annex I to one of the Contracts, A was expressly listed as B’s subcontractor and as the supplier of diesel engines. Despite A’s presence at the conclusion of one Contract, A’s participation in various meetings with the buyers, and despite A’s various communications with the buyers, A’s involvement in the Contracts did not go beyond fulfilling its obligations as defined in A’s supply contract entered into with B. Given A’s involvement as a subcontractor based on its supply contract with B, the buyers were also not entitled in good faith to understand a letter written on behalf of both, A and B, as an expression of A’s intent to agree to the arbitration clause in the Contracts and thus to waive state jurisdiction. On the contrary, in view of the contractual provisions made, the buyers had to be aware that A was not a party to the Contract(s) and was also not bound by the arbitration clause(s) contained therein.

In the decision 4A_618/2019 (17.09.2020), the SFSC made a further clarification with respect to the tribunal’s determination of its jurisdiction. In default proceedings, where a respondent to an arbitration fails to submit an answer, the arbitral tribunal must review its jurisdiction ex officio. Thereby, the tribunal may gather certain additional information and carry out investigative measures with a view to determining whether it is competent to decide the dispute.

 

Difference Between an Interim and a Partial Award

In decision 4A_300/2020 (24.07.2020), the SFSC addressed the question of when a partial decision, i.e. an arbitral decision dealing with only part of the submitted claims, qualifies as a final and when as a preliminary decision.

The underlying dispute arose out of a Gas Sales Purchase Contract entered into by the seller A and the buyers B and C. After A failed to supply gas, B and C filed a claim for damages and terminated the Contract. The tribunal decided that the termination was valid. A appealed against this decision.

The SFSC held that an arbitral decision qualifies as a partial award if it, independently of other claims, definitely adjudicates and concludes the proceedings with respect to a part of what is claimed. In contrast, a decision merely clarifying one or more preliminary issues with regard to the arbitral decision, qualifies as interim award.

In the present case, the question of whether a contract was validly terminated and the amount of damages were closely related. The arbitral tribunal’s decision that the termination of the contract was valid had a decisive influence on the calculation of the owed damages. The two claims were therefore not independent and the contested decision did not qualify as a partial award.

 

Scope of Res Judicata

In decision 4A_536/2018 (16.03.2020), the SFSC dealt with the principle of res judicata in a dispute between a football club and a footballer’s agent. In the first arbitration against the club, the claimant agent filed a request for payment of a fee and for a declaratory judgement, declaring that he was entitled to a payment of an additional renumeration. In the second arbitration, the claimant agent requested the payment of the additional renumeration from the club. While the first tribunal denied the agent’s right to a declaratory judgment on his entitlement to the additional renumeration, the second tribunal granted his payment request.

The club appealed against the second award arguing, inter alia, that it ignored the binding effect of res judicata and thus violated the procedural public policy.

The SFSC dismissed the appeal stating that res judicata prohibits to question, in a new procedure between the same parties, an identical claim that has been judged in a final decision. The tribunal hearing the new claim is bound by the operative part of the previous decision. While the tribunal’s reasoning can be consulted to determine the precise scope of the operative part – particularly when the operative part merely states that the claim is dismissed –, the reasoning is not binding on the tribunal.

The first tribunal declined to address the agent’s request for declaratory relief. In the operative part, it dismissed the request. This decision of inadmissibility did not prevent a new claim for payment as the binding effect of that decision is restricted to the question of admissibility that has been discussed and denied.

 

Right to be Heard and Right to Equal Treatment

In the aforementioned decision 4A_536/2018, the SFSC also addressed the question of when a party can successfully appeal an award arguing that its right to be heard has been violated. A tribunal’s finding that is obviously inaccurate or contrary to the record is not sufficient to lead to the setting aside of the award since the right to be heard does not guarantee a substantively correct decision and the SFSC’s examination of the award is limited to the question of its compatibility with public policy. On the other hand, a tribunal cannot protect itself from a complaint of violation of the right to be heard by inserting in the award a statement that the allegations, arguments, and evidence put forward by the parties have all been taken into account and that the parties have confirmed at the end of the hearing that their right to be heard has been fully respected.

In decisions 4A_62/2020 (30.09.2020) and 4A_384/2020 (10.12.2020), both dealing with appeals against CAS awards, the SFSC recalled that the right to be heard relates mainly to the establishment of facts and that arbitral tribunals are free to assess the legal scope of the facts and may also decide on the basis of legal rules other than those invoked by the parties. Only exceptionally do the parties have the right to be heard on legal questions (previously discussed here). This exception is applied restrictively and cannot be used by the party complaining of errors in the reasoning of the award to provoke an examination of the application of substantive law.

In decision 4A_156/2020 (01.10.2020), the SFSC dealt with a request to vacate a cost award. The claimants appealed against an award terminating the proceedings and obliging them to pay the respondents fees of approximately EUR 650,000. In the appeal, the claimants argued that their right to be heard as well as the principle of equality of the parties had been violated, inter alia, because the Tribunal had failed to grant them an extension of the deadline and had denied them the opportunity to comment on the defendant’s unsolicited submission.

The SFSC dismissed the appeal holding that the right to be heard does not imply an absolute right to a double exchange of submissions. More than two months elapsed between the last submission and the rendering of the award. During this time, the claimants could have (i) requested the tribunal for a deadline to file a response, (ii) complained that they were not given the opportunity to file a response, or (iii) filed an unsolicited response. As far as the right to equal treatment is concerned, the procedure must be conducted in such a way that each party has the same opportunity to present its case. Like in the case of the complaint of violation of the right to be heard, also here the complainant must not only show that she has been treated unequally compared to the opposing party, but also how the outcome of the proceedings could have been different if the alleged violations had not been committed. Importantly, the party who considers herself to be the victim of a procedural error must complain about the error without delay, otherwise she is prevented from asserting it in the context of an appeal.

 

Rules and Limits to New Legal Arguments Before the SFSC

In decision 4A_80/2018 (07.02.2020), the SFSC assessed a partial award rendered in an investment dispute between four European investors and the Czech Republic, dealing with the issues of jurisdiction and liability.

The SFSC held, inter alia, that unlike the submission of new facts and evidence, the submission of new legal arguments is in principle admissible in proceedings before it. New legal arguments must be raised within the time limit for appeal and may be supplemented by a new legal opinion, excerpts of doctrine or decisions of foreign judicial authorities, which may at least partially have the character of evidence. A party may also submit a judgment related to the case, to support facts. Foreign court or arbitral decisions are admissible if they were issued before the date of issuance of the disputed award. In international investment protection disputes, decisions rendered in earlier proceedings do not bind tribunals in subsequent investment arbitrations, so that they cannot be considered as a source of arbitration law as such.

In accordance with the above principles, the appellant Czech Republic could not rely on the Achmea decision of 6 March 2018 (Case C-284/16), nor on the Antaris award (PCA Case No. 2014-01) as they were both rendered after the disputed award. In keeping with its practice, the SFSC determined the meaning of the treaties in question in accordance with the applicable methods of interpretation, taking into account the doctrine, but with complete freedom in relation to other arbitral awards on the subject.

In decision 4A_461/2019 (02.11.2020), the SFSC reaffirmed its position that, in the international investment protection, pre-existing decisions do not constitute actual sources of law according to which an arbitral tribunal would have to act. It dismissed an appeal to vacate an award accepting the jurisdiction of an arbitral tribunal under the relevant BIT.

 

Concluding Remarks on the 2020 Decisions

In 2020, the SFSC further clarified its constant jurisprudence. In the much discussed decision 4A_398/2019 (25.08.2020) in the case of athlete Caster Semenya, it dismissed an appeal to set aside the CAS award reiterating that it was compatible with substantive public policy and confirming its considerations made in the procedural order of 29.07.2019 (previously discussed here). In the decision 4A_486/2019 (17.08.2020), the SFSC confirmed that the procedural guarantees of article 6(1) ECHR cannot be invoked directly in the setting aside proceedings.

On 22.12.2020, the SFSC approved the request of Chinese swimmer Sun Yang to set aside CAS decision 2019/A/6148 due to bias of Franco Frattini, one of the arbitrators. The SFSC’s decision 4A_318/2020 was published on 15.01.2021 and will be discussed in a separate post.

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Insolvency and Arbitration in Brazil: One More Step Ahead

Thu, 2021-02-04 00:26

On 24 December 2020, the New Brazilian Insolvency Act (“NBIA” – a slight misnomer, as the Act is in fact an amendment to an existing statute) was published in the official Brazilian gazette. The act implements important modifications in the field, including a few related to arbitration, which came into force on 23 January 2021.

Arbitration and insolvency1)The terms ‘insolvency’, ‘judicial reorganisation’, and ‘bankruptcy’ are often used loosely to describe any kind of financial failure. In this article, for the sake of convenience, I use the term ‘insolvency’ to describe the legal proceedings where a court declares that a company is insolvent and can no longer pay off their debts, issuing a winding-up order. The term ‘judicial reorganisation’ is dedicated to cases where the debtor applies to court seeking to save its business and discharge its debts by entering into a reorganisation plan approved by its creditors and by the court. I don’t use the term ‘bankruptcy’, as in many jurisdictions it only applies to individuals, and not companies. jQuery("#footnote_plugin_tooltip_5151_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5151_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); are two separate worlds governed by different policies. On the one hand, arbitration aims to enforce party autonomy and ensure that the winning party gets what it deserves, regardless of the impact of the arbitral award on third parties. On the other hand, insolvency is an attempt to rescue a viable business and/or return productive resources to the market, balancing the interests of the insolvent party with the interests of creditors and other stakeholders.

Unsurprisingly, these policies sometimes clash, and different legal systems have come up with a variety of solutions, often causing complex issues in cross-border disputes. In general, the complexity resides on the lack of specific legal provisions dealing with (i) the arbitrability of insolvency issues, (ii) the effects of insolvency proceedings on arbitration agreements, and (iii) the effects of insolvency proceedings on ongoing arbitrations.

The NBIA expressly deals with the two latter issues. This post briefly explains (i) the relevance of the new legal provisions in the context of a global economic crisis, and (ii) the impact of insolvency on arbitration agreements and ongoing arbitrations in Brazil according to the new legislation (highlighting, when appropriate, precedents from the Superior Court of Justice – “STJ” – on the topics).

 

Well-timed modification

The global economy is in crisis. In April 2020, the IMF indicated that 2020 would see the worst global economic contraction since the Great Depression of the 1930s. In December 2020, the OECD reported that global GDP had decreased 4.2% in the last year as the result of the pandemic (Statista puts the figure even higher, at 4.5%).

In Brazil, the number of winding-up petitions filed in July 2020 increased 28.9% in comparison to July 2019. In the same period, the number of petitions seeking judicial reorganisation in the country jumped to 82.2% in contrast to July 2019.

Needless to say, the huge economic crisis the COVID-19 pandemic caused, and the boost in numbers of insolvency proceedings will likely bring a renewed focus on the topic of ‘arbitration & insolvency’ in 2021. This will require businesspeople, lawyers, arbitrators, and arbitral institutions to use all their creativity in designing the most reasonable legal solutions.

In this sense, the NBIA is a well-timed initiative which will bring more certainty and predictability to arbitrations seated in Brazil and/or to arbitrations involving at least one party headquartered in the country.

 

Insolvency, judicial reorganisation, and arbitration under the NBIA

As previously discussed here, the original text of the Brazilian Insolvency Act did not mention the words “arbitration” or “arbitral”, which was not a particularity of the country as this lack of provisions regarding arbitration is a common feature of many insolvency laws across the globe. In contrast, the NBIA now registers these words five times. This post explores three of these uses.

According to the new paragraph 9 of s. 6, “the commencement of a judicial reorganisation proceeding or the issuance of a winding-up order will neither permit the trustee/liquidator to discharge the arbitration agreement, nor prevent arbitrations from starting or continuing”.

The new provision reinforces what legal scholars2)For a comprehensive analysis of the academic works, see MONTEIRO, Andre Luis. FICHTNER, Jose Antonio. MANNHEIMER, Sergio. Teoria geral da arbitragem. Rio de Janeiro: Forense, 2019, p. 426-490. jQuery("#footnote_plugin_tooltip_5151_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5151_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and case law had already supported: a pre-existing arbitration agreement is not discharged by the commencement of judicial organisation proceedings or by the issuance of a winding-up order. Unlike other jurisdictions, in Brazil trustees/liquidators do not have the power to discharge pre-existing arbitration agreements based on these facts. Also, it is not necessary to seek court permission to enforce pre-existing arbitration agreements against an insolvent party. Everything stands as it was.

In addition, neither creditors nor insolvent parties are prevented from commencing or continuing arbitrations after the beginning of judicial reorganisation proceedings or after the issuance of winding-up orders. Moreover, courts cannot stay ongoing arbitrations exclusively based on these facts. The STJ had already adopted this understanding in the case Hornbeck v Astromarítima (2018). Then, it seems like the NBIA simply turned the existing case law into a legal provision.

This provision also makes clear that the commencement of judicial reorganisation proceedings or the issuance of a winding-up order do not turn the claims made against the insolvent party into inarbitrable matters. Logically speaking, if the arbitration is not stayed and, therefore, it can commence or continue, it follows that the subject matter does not become inarbitrable.

In cases where an insolvency court has rendered a winding-up order, the new s. 22(iii)(c) establishes that the concerned trustee/liquidator will “take on the representation of the estate in extrajudicial matters, court proceedings, and arbitrations.” This provision clarifies that, from the issuance of the winding-up order, the trustee/liquidator will assume the legal representation of the estate, which means he/she will be able to hire/replace lawyers, discuss potential settlements etc., including in arbitration proceedings. As this replacement may take some time, it is fair for the arbitral tribunal to stay the ongoing arbitration for a reasonable period of time, for instance, 60-90 days.

Last but certainly not least, the NBIA has adopted the 1997 UNCITRAL Model Law on Cross-Border Insolvency,3)See ARAUJO, Nadia de. SPITZ, Lidia, “A insolvência transnacional na nova Lei de Falências.” jQuery("#footnote_plugin_tooltip_5151_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5151_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but with a few important distinctions. Based on subparagraph 1(a) of Article 20 of the Model Law, the UNCITRAL Guide to Enactment and Interpretation of the Model Law states that “by not distinguishing between various kinds of individual action, (the provision) also covers actions before an arbitral tribunal” and, therefore, “article 20 establishes a mandatory limitation to the effectiveness of an arbitration agreement,”, i.e., arbitrations are also subject to the automatic stay provided for this provision.

This is not the approach that the NBIA takes. Paragraph two of s. 167-M states that, in spite of the recognition of the main foreign insolvency proceeding, “it does not affect the creditors’ right to commence or continue any court proceedings or arbitrations seeking a monetary award against a debtor, except when it involves executive measures against the debtor’s assets, which will keep stayed”. In other words, the effects of main insolvency proceedings taking place abroad do not prevent the creditor from commencing or continuing arbitrations against the insolvent party in Brazil. In practical terms, only measures against the debtor’s assets (freezing orders, search and seizure orders, orders for sale, etc.) should be suspended under this scenario.

The NBIA does not deal with the arbitrability of core-insolvency-issues, but the STJ’s case law is clear on that arbitral tribunals do not have powers to grant winding-up orders, for example. Consequently, as decided in Jutaí 661 v PSI (2013) and Volkswagen v Metalzul (2018), a pre-existing arbitration agreement does not prevent the creditor from filing a winding-up petition in the insolvency courts. Also, as decided in Galvão Engenharia v. Clark (2017), Hornbeck v Astromarítima (2018), and Oi v Bratel (2018), arbitral tribunals do not have powers to deal with an insolvent party’s assets (they cannot, for example, issue freezing orders, search and seizure orders, orders for sale, etc.).

 

Conclusion

The NBIA has come into play at a pertinent moment and it adopts an indisputably arbitration-friendly approach. Hopefully, the new legislation can serve as an inspiration for more studies in this field and, also, for other countries’ legislative works.

References   [ + ]

1. ↑ The terms ‘insolvency’, ‘judicial reorganisation’, and ‘bankruptcy’ are often used loosely to describe any kind of financial failure. In this article, for the sake of convenience, I use the term ‘insolvency’ to describe the legal proceedings where a court declares that a company is insolvent and can no longer pay off their debts, issuing a winding-up order. The term ‘judicial reorganisation’ is dedicated to cases where the debtor applies to court seeking to save its business and discharge its debts by entering into a reorganisation plan approved by its creditors and by the court. I don’t use the term ‘bankruptcy’, as in many jurisdictions it only applies to individuals, and not companies. 2. ↑ For a comprehensive analysis of the academic works, see MONTEIRO, Andre Luis. FICHTNER, Jose Antonio. MANNHEIMER, Sergio. Teoria geral da arbitragem. Rio de Janeiro: Forense, 2019, p. 426-490. 3. ↑ See ARAUJO, Nadia de. SPITZ, Lidia, “A insolvência transnacional na nova Lei de Falências.” function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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